Price and Volume Effects of Changes in MSCI Indices - Nature and Causes

39 Pages Posted: 9 Feb 2005

See all articles by Wei Huang

Wei Huang

University of Hawaii at Manoa - Shidler College of Business

Rajesh Chakrabarti

OP Jindal Global University

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 stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change, though part of the gain is lost after the actual change date. The stocks that are deleted from the indices, on the other hand, witness a steady and marked decline in their prices. Trading volumes 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. Tests using data on various measures reflecting the different hypotheses fail to turn up any evidence in support of information effects. Our evidence appears to be more supportive of the downward sloping demand curve hypothesis. There is some evidence of price-pressure and mild evidence of liquidity effect, particularly in Japan and UK.

Keywords: Index effects, downward sloping demand curve, MSCI, liquidity

JEL Classification: G14, G15

Suggested Citation

Huang, Wei and Chakrabarti, Rajesh and Jayaraman, Narayanan and Lee, Jinsoo, Price and Volume Effects of Changes in MSCI Indices - Nature and Causes. Available at SSRN: https://ssrn.com/abstract=664185 or http://dx.doi.org/10.2139/ssrn.664185

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

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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