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Investing in the Presence of Massive Flows: The Case of MSCI Country Reclassifications

Terence Burnham, Harry Gakidis and Jeffrey Wurgler

No 23557, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Almost $10 trillion is benchmarked to Morgan Stanley Capital International’s Developed, Emerging, Frontier, and standalone market indexes. Reclassifications from one index to another require thousands of investors to decide how to react. We study a comprehensive sample of past reclassifications to inform this decision. On average, reclassified markets’ prices substantially overshoot between the announcement and effective dates—prices fall when a market moves from an index with more benchmarked ownership to one with less, such from Emerging to Frontier, and vice-versa—but largely revert within a year. We identify alpha-maximizing responses to reclassifications for both benchmarked and more flexible investors.

JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-ifn
Note: AP
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Published as Terence C. Burnham & Harry Gakidis & Jeffrey Wurgler, 2018. "Investing in the Presence of Massive Flows: The Case of MSCI Country Reclassifications," Financial Analysts Journal, vol 74(1), pages 77-87.

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