Price distortion induced by a flawed stock market index

Kotaro Miwa () and Kazuhiro Ueda ()
Additional contact information
Kotaro Miwa: Tokio Marine Asset Management Co., Ltd
Kazuhiro Ueda: The University of Tokyo

Financial Markets and Portfolio Management, 2016, vol. 30, issue 2, No 2, 137-160

Abstract: Abstract Despite the introduction of sophisticated stock market indices, investors often trade portfolios of the flawed indices to change their exposure to the market. In this study, we show that these transactions cause significant mispricing in individual stocks, especially during periods of significant market movement. As an influential, albeit flawed, stock index, we focus on the Nikkei 225. We find index constituents that are excessively weighted on the index, experience buying (selling) pressure when the stock market surges (falls), and experience price corrections after such periods of change. In contrast, non-constituent stocks do not experience such trading pressure.

Keywords: Stock market index; Price-weighted index; Trading pressure; Stock mispricing (search for similar items in EconPapers)
JEL-codes: G14 G17 G23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11408-016-0269-5 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:fmktpm:v:30:y:2016:i:2:d:10.1007_s11408-016-0269-5

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/11408/PS2

DOI: 10.1007/s11408-016-0269-5

Access Statistics for this article

Financial Markets and Portfolio Management is currently edited by Manuel Ammann

More articles in Financial Markets and Portfolio Management from Springer, Swiss Society for Financial Market Research Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().