The Anatomy of Index Rebalancings: Evidence from Transaction Data

Mariana Escobar, Lorenzo Pandolfi, Alvaro Pedraza and Tomas Williams
Additional contact information
Mariana Escobar: Banco de la Republica de Colombia
Alvaro Pedraza: The World Bank

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We exploit novel transaction-level data from Colombia to analyze episodes of additions to and deletions from MSCI equity indexes. We fnd additions and deletions to have large price effects (5.5%). We show that these effects are due to large demand shocks by different classes of international investors - beyond passive funds and ETFs - which are not absorbed by arbitrageurs. Consistent with asset pricing models with limits to arbitrage, stock demand curves are very inelastic: the median elasticity in our sample is -0.34, implying that a 1% increase in the demand for a stock increases its price by 2.9%.

Keywords: index rebalancings; institutional investors; stocks demand elasticity; passive funds; arbitrage (search for similar items in EconPapers)
JEL-codes: F32 G11 G15 (search for similar items in EconPapers)
Date: 2021-08-10, Revised 2021
New Economics Papers: this item is included in nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The Anatomy of Index Rebalancings: Evidence from Transaction Data (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:621

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