Additions to Market Indices and the Comovement of Stock Returns around the World

Stijn Claessens () and Yishay Yafeh

No 7052, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate company additions to stock market indices over a six-year period in 39 developed and emerging markets around the world. For most markets, we find a post-inclusion increase in beta and an increase in the explanatory power of market returns (R2), reflecting increased comovement after inclusion between the added stock and rest of the index. In addition, for most markets there is a post-inclusion increase in stock turnover. These inclusion effects increase over time, tend to be stronger when the index is dispersed (i.e., includes many stocks), and in ?common law? countries. These patterns appear to be inconsistent with the view that stock returns are generated by fundamentals only and are consistent with the category/habitat view of Barberis, Shleifer and Wurgler (2005). In line with this interpretation, we present evidence that the post-inclusion increase in comovement is positively correlated with the presence of index-oriented institutional investors in the market. We also present tentative evidence suggesting that, in less developed markets, the post-inclusion increase in comovement is related to information problems.

Keywords: Beta; Comovement; Index inclusion (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2008-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP7052 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Additions to Market Indices and the Comovement of Stock Returns Around the World (2011)
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:cpr:ceprdp:7052

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7052

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().