Who Trades Index Rebalancings? Evidence on Benchmarking and Inelastic Demand

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: Benchmark index rebalancings are widely used to study non-fundamental demand shocks, but the underlying trading is rarely observed. Exploiting transaction-level data from the Colombian stock market and additions and deletions of stocks from MSCI international equity indexes, we trace who generates benchmark-driven demand, who absorbs it, and how it affects prices. Index demand extends beyond explicit index funds and ETFs: benchmarked but nominally active foreign institutions account for most rebalancing-driven trading. Domestic investors absorb most of the shock, while arbitrage capital plays only a limited role. We show that stock demand curves are steep, especially when retail participation is larger.

Keywords: index rebalancings; institutional investors; stock demand elasticity; passive funds; Benchmarking; inelastic market hypothesis (search for similar items in EconPapers)
JEL-codes: F32 G11 G15 (search for similar items in EconPapers)
Date: 2021-08-10, Revised 2026-05-05
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 (8)

Downloads: (external link)
https://www.csef.it/WP/wp621.pdf (application/pdf)

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:sef:csefwp:621

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().