Foreign Ownership and Local Market Reaction to Changes of the Constituents in the International Stock Index: Evidence from Additions to and Deletions from Msci Taiwan Index

36 Pages Posted: 28 Aug 2009

See all articles by Cheng-Yi Shiu

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance

Jessie Y. Wu

National Central University at Taiwan

Date Written: August 28, 2009

Abstract

This paper examines local market reactions to the constituent changes in MSCI Taiwan Index. We find that market adjusted returns are significantly positive for additions and significantly negative for deletions on the announcement day, and on the effective day. The price patters following the effective day are asymmetric for additions and deletions. We also find that foreign ownership increases for additions and decreases for deletions. The amount of increased foreign ownership for additions is higher than the amount of decreased foreign ownership for deletions. Our results support the investor awareness hypothesis.

Keywords: MSCI Taiwan Index, index changes, constituents, investor awareness

JEL Classification: G12, G14

Suggested Citation

Shiu, Cheng-Yi and Wu, Jessie Y., Foreign Ownership and Local Market Reaction to Changes of the Constituents in the International Stock Index: Evidence from Additions to and Deletions from Msci Taiwan Index (August 28, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1463337 or http://dx.doi.org/10.2139/ssrn.1463337

Cheng-Yi Shiu (Contact Author)

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

Jessie Y. Wu

National Central University at Taiwan ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

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