Market Reaction to Addition of Indian Stocks to the MSCI Index

Money and Finance, Vol. 2, No. 11, October-December 2002

24 Pages Posted: 18 Jan 2005

Abstract

As globalization of the Indian bourses continue, the role of international stock indices in Indian markets is likely to become more prominent. This paper studies the effect that the inclusion of Indian firms in an international stock index has on their price and traded volume. An empirical analysis of market reaction to addition of stocks to a widely followed international index - the MSCI India Standard Index - reveals that such additions are associated with a significant and permanent rise upon announcement of the addition with no corresponding rise in volumes traded in those stocks. It appears that the "information effect" - the view that membership in a major stock index signals positive information about the company in question - is most likely to be the driver behind this "announcement effect". This suggests that membership of an international index is perceived as a positive signal by the market.

Keywords: India, stock market, international index

JEL Classification: N20, G15

Suggested Citation

Chakrabarti, Rajesh, Market Reaction to Addition of Indian Stocks to the MSCI Index. Money and Finance, Vol. 2, No. 11, October-December 2002, Available at SSRN: https://ssrn.com/abstract=649850

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
439
Abstract Views
2,456
rank
81,461
PlumX Metrics