Do International Investors' Demand Curves for Stocks Slope Down Too?

52 Pages Posted: 14 Jun 2002

See all articles by Rajesh Chakrabarti

Rajesh Chakrabarti

OP Jindal Global University

Wei Huang

University of Hawaii at Manoa - Shidler College of Business

Narayanan Jayaraman

Georgia Institute of Technology - Scheller College of Business

Jinsoo Lee

KDI School of Public Policy and Management

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

Chakrabarti, Rajesh and Huang, Wei and Jayaraman, Narayanan and Lee, Jinsoo, Do International Investors' Demand Curves for Stocks Slope Down Too?. EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=314259 or http://dx.doi.org/10.2139/ssrn.314259

Rajesh Chakrabarti (Contact Author)

OP Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

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)

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)

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

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