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Impact of capital market internationalization on stock markets: Evidence from the inclusion of China A-shares in the MSCI Emerging Markets Index

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  • Dong, Shizheng
  • Zheng, Jianming
  • Jia, Haoyang
  • Zhang, Zili

Abstract

This paper assesses the short- and long-term market reaction to including A-shares in the Morgan Stanley Capital International Emerging Markets Index. In the short term, the underlying stocks gain cumulative excess returns before and after the announcement date, reflecting a positive signal to the market and presenting a significant index effect. In the long run, including A-shares in the index may improve market quality by influencing stock market synchronization and liquidity and turnover rate. Therefore, we suggest that emerging market countries should actively internationalize their capital markets, introduce foreign investors, increase investor awareness, and improve their capital market structures.

Suggested Citation

  • Dong, Shizheng & Zheng, Jianming & Jia, Haoyang & Zhang, Zili, 2023. "Impact of capital market internationalization on stock markets: Evidence from the inclusion of China A-shares in the MSCI Emerging Markets Index," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001150
    DOI: 10.1016/j.ribaf.2023.101989
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    References listed on IDEAS

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    1. Chang, Tsangyao & Chen, Wen-Yi & Gupta, Rangan & Nguyen, Duc Khuong, 2015. "Are stock prices related to the political uncertainty index in OECD countries? Evidence from the bootstrap panel causality test," Economic Systems, Elsevier, vol. 39(2), pages 288-300.
    2. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    3. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
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    Cited by:

    1. Tan, Yafei & Zhu, Zhaohui, 2024. "The internationalization of capital market and corporate innovation capabilities: A quasi-natural experiment on the inclusion of China's A-shares in the MSCI index," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1021-1038.
    2. Li, Ping & Wang, Kai & Zhang, Junping, 2023. "Does the inclusion of Chinese A-shares in the MSCI EM index promote ESG performance?," Finance Research Letters, Elsevier, vol. 58(PB).

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