Investing in the Presence of Massive Flows: The Case of MSCI Country Reclassifications

25 Pages Posted: 10 Jul 2017 Last revised: 15 May 2022

See all articles by Terence Burnham

Terence Burnham

Chapman University - The George L. Argyros College of Business and Economics; Chapman University The George L. Argyros School of Business & Economics

Harry Gakidis

Acadian Asset Management

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2017

Abstract

Almost $10 trillion is benchmarked to Morgan Stanley Capital International’s Developed, Emerging, Frontier, and standalone market indexes. Reclassifications from one index to another require thousands of investors to decide how to react. We study a comprehensive sample of past reclassifications to inform this decision. On average, reclassified markets’ prices substantially overshoot between the announcement and effective dates—prices fall when a market moves from an index with more benchmarked ownership to one with less, such from Emerging to Frontier, and vice-versa—but largely revert within a year. We identify alpha-maximizing responses to reclassifications for both benchmarked and more flexible investors.

Suggested Citation

Burnham, Terence C. and Gakidis, Harry and Wurgler, Jeffrey A., Investing in the Presence of Massive Flows: The Case of MSCI Country Reclassifications (June 2017). NBER Working Paper No. w23557, Available at SSRN: https://ssrn.com/abstract=2999536

Terence C. Burnham (Contact Author)

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA
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Chapman University The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA
United States

Harry Gakidis

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
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212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

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