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

March 1, 2011

Preview Citation

Format: Chicago

Yishay Yafeh, and Stijn Claessens. Additions to Market Indices and the Comovement of Stock Returns Around the World, (USA: International Monetary Fund, 2011) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using newly-constructed data covering the last decade, we document that, in most of forty markets, when added to the main index, firms’ returns experience an increase in comovement with the rest of the index, reflected in higher beta and greater explanatory power of the market return. Stock turnover and analyst coverage also typically increase upon inclusion. Using various tests, we find the demand-based view of comovement (the category/habitat theories of Barberis, Shleifer and Wurgler, 2005) to provide a good explanation for many of our findings. Some results, though, suggest that information-related factors are also important in explaining the increased comovement.

Subject: Asset prices, Liquidity, Pension spending, Stock markets, Stocks

Keywords: Inclusion comovement, Inclusion effect, Inclusion increase, Index concentration, Stock price, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/047
Stock No:

WPIEA2011047
ISBN:

9781455218950
ISSN:

1018-5941

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