The 'Index Effect' on Stock Prices and Trading Volumes: International Evidence

Posted: 2 Jun 2002

See all articles by Wei Huang

Wei Huang

University of Hawaii at Manoa - Shidler College of Business

Rajesh Chakrabarti

OP Jindal Global University

Jinsoo Lee

KDI School of Public Policy and Management

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Date Written: May 2002

Abstract

Using changes in the MSCI Standard Country Indices for 29 countries between 1998 and 2001, we document that stock returns and volumes exhibit "index effects" in international markets similar to those detected by the studies of US stocks. The inclusion of a stock generally leads to higher returns immediately following the announcement followed by a further rise till the actual change with a partial reversion in the post change period. Deletions lead to significant negative returns that continue after the change date. Volumes traded increase significantly and remain at high levels after the change date for the added stocks. There are also considerable cross-country variations in these effects. The evidence is consistent with the downward sloping demand curve hypothesis though some price-pressure effects are also present. Tests using data on ADR availability and free float on stocks added to the indices fail to turn up any evidence in support of information effects.

Suggested Citation

Huang, Wei and Chakrabarti, Rajesh and Lee, Jinsoo and Jayaraman, Narayanan, The 'Index Effect' on Stock Prices and Trading Volumes: International Evidence (May 2002). EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=313944 or http://dx.doi.org/10.2139/ssrn.313944

Wei Huang

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States
808-956-7679 (Phone)
808-956-9887 (Fax)

Rajesh Chakrabarti (Contact Author)

OP Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Jinsoo Lee

KDI School of Public Policy and Management ( email )

P.O. Box 184
Seoul, 130-868
Korea, Republic of (South Korea)
822-3299-1060 (Phone)
822-968-5072 (Fax)

HOME PAGE: http://www.kdischool.ac.kr

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4389 (Phone)
404-894-6030 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,923
PlumX Metrics