The Anatomy of Index Rebalancings : Evidence from Transaction Data
This paper exploits a novel dataset covering the universe of transactions in the Colombian Stock Exchange to analyze episodes of additions to and deletions from MSCI equity indexes. The analysis finds that additions and deletions have large price e...
| Main Authors: | , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/706421631193249974/The-Anatomy-of-Index-Rebalancings-Evidence-from-Transaction-Data http://hdl.handle.net/10986/36278 |
| Summary: | This paper exploits a novel dataset
covering the universe of transactions in the Colombian Stock
Exchange to analyze episodes of additions to and deletions
from MSCI equity indexes. The analysis finds that additions
and deletions have large price effects: the median
cumulative abnormal return in absolute value is 5.5 percent.
The paper shows that these price effects are due to large
demand shocks by different classes of international
investors—not only passive funds and ETFs, but also active
mutual funds, pension funds and government funds—which are
not absorbed by arbitrageurs. Consistent with recent asset
pricing models with limits to arbitrage, stock demand curves
are estimated to be very inelastic: the demand elasticity
for the median stock in the sample is −0.34, implying that a
1 percent increase in the demand for the stock increases its
price by 2.9 percent. |
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