The Anatomy of Index Rebalancings : Evidence from Transaction Data

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...

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Main Authors: Escobar, Mariana, Pandolfi, Lorenzo, Pedraza, Alvaro, Williams, Tomas
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2021
Subjects:
INDEX REBALANCING
INSTITUTIONAL INVESTOR
STOCK MARKET INDEX
PASSIVE FUND
ARBITRAGE
DEMAND ELASTICITY
Online Access:http://documents.worldbank.org/curated/undefined/706421631193249974/The-Anatomy-of-Index-Rebalancings-Evidence-from-Transaction-Data
http://hdl.handle.net/10986/36278
id okr-10986-36278
recordtype oai_dc
spelling okr-10986-362782021-09-18T05:10:33Z The Anatomy of Index Rebalancings : Evidence from Transaction Data Escobar, Mariana Pandolfi, Lorenzo Pedraza, Alvaro Williams, Tomas INDEX REBALANCING INSTITUTIONAL INVESTOR STOCK MARKET INDEX PASSIVE FUND ARBITRAGE DEMAND ELASTICITY 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. 2021-09-17T17:27:32Z 2021-09-17T17:27:32Z 2021-09 Working Paper http://documents.worldbank.org/curated/undefined/706421631193249974/The-Anatomy-of-Index-Rebalancings-Evidence-from-Transaction-Data http://hdl.handle.net/10986/36278 English Policy Research Working Paper;No. 9770 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Colombia
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic INDEX REBALANCING
INSTITUTIONAL INVESTOR
STOCK MARKET INDEX
PASSIVE FUND
ARBITRAGE
DEMAND ELASTICITY
spellingShingle INDEX REBALANCING
INSTITUTIONAL INVESTOR
STOCK MARKET INDEX
PASSIVE FUND
ARBITRAGE
DEMAND ELASTICITY
Escobar, Mariana
Pandolfi, Lorenzo
Pedraza, Alvaro
Williams, Tomas
The Anatomy of Index Rebalancings : Evidence from Transaction Data
geographic_facet Latin America & Caribbean
Colombia
relation Policy Research Working Paper;No. 9770
description 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.
format Working Paper
author Escobar, Mariana
Pandolfi, Lorenzo
Pedraza, Alvaro
Williams, Tomas
author_facet Escobar, Mariana
Pandolfi, Lorenzo
Pedraza, Alvaro
Williams, Tomas
author_sort Escobar, Mariana
title The Anatomy of Index Rebalancings : Evidence from Transaction Data
title_short The Anatomy of Index Rebalancings : Evidence from Transaction Data
title_full The Anatomy of Index Rebalancings : Evidence from Transaction Data
title_fullStr The Anatomy of Index Rebalancings : Evidence from Transaction Data
title_full_unstemmed The Anatomy of Index Rebalancings : Evidence from Transaction Data
title_sort anatomy of index rebalancings : evidence from transaction data
publisher World Bank, Washington, DC
publishDate 2021
url http://documents.worldbank.org/curated/undefined/706421631193249974/The-Anatomy-of-Index-Rebalancings-Evidence-from-Transaction-Data
http://hdl.handle.net/10986/36278
_version_ 1764484921337839616

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