Stock Price and Trading Volume Effects Associated with Changes in the MSCI Free Indices: Evidence from Taiwanese Firms Added to and Deleted from the Indices

Pei-Gi Shu (), Yin-Hua Yeh () and Yu-Chen Huang ()
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Pei-Gi Shu: Department of Business Administration, Fu-Jen Catholic University, Taipei 242, Taiwan, ROC
Yin-Hua Yeh: Department of International Trade and Finance, Fu-Jen Catholic University, Taipei 242, Taiwan, ROC
Yu-Chen Huang: Graduate School of Management, Fu-Jen Catholic University, Taipei 242, Taiwan, ROC

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 04, 471-491

Abstract: This study analyzes price-volume relation for Taiwanese listed firms that are added to or deleted from the MSCI free indices in the sampling period from May 17, 1999 to May 21, 2001. Additions to the indices found a positive abnormal return of 3.9% in the run-up window from the announcement day up to one day before the change was implemented. This was followed by a significant reversal on the change day. The deleted firms exhibit an even stronger announcement effect, with a significant abnormal return of -9.1% in the run-up, followed by a reversal of 1.6% on the change day. Even when reversals occurred on the change day, the abnormal returns in the post-announcement window are positive for additions and negative for deletions. The results support the price-pressure and long-run downward-sloping-demand hypothesis and are inconsistent with the efficient market hypothesis. The abnormal trading volume for deletions is negative following the announcement, contradicting the findings of Lynch and Mendenhall (1997). This difference is due to the innate of the Taiwanese stock market, in which no dedicated market makers accommodate block trading. Moreover, the regression results confirm a positive volume-return relation before and a negative relation on and after the change day. Finally, the QFII net buy (sell) the added (deleted) stocks up to ten days after the change was implemented, while the Securities Investment Trusts and Securities dealers, having a shorter frame net, buy the added stocks up to two days after the effective change. Individual investors reversing position on the change day are responsible for the price reversal on the change day.

Keywords: MSCI; composition changes; QFII (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (8)

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DOI: 10.1142/S021909150400024X

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