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The MSCI-Canada index rebalancing and excess comovement

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  • J. Coakley
  • P. Kougoulis
  • J. C. Nankervis

Abstract

Major changes to the MSCI Canada Standard Country index were announced and implemented in May 2000. This rebalancing involved the addition of some 17 and deletion of 13 stocks and had the net effect of increasing the market capitalization by US$50 billions. We investigate the associated changes in stock return comovement around this event on the Toronto Stock Exchange, the third largest North American exchange. We find that the average beta of the added stocks increases by as much as a factor of 1.6 while the average R2 increases by up to 5%. Robustness tests indicate the results are not driven by nonsynchronous trading.

Suggested Citation

  • J. Coakley & P. Kougoulis & J. C. Nankervis, 2008. "The MSCI-Canada index rebalancing and excess comovement," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1277-1287.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:16:p:1277-1287
    DOI: 10.1080/09603100701537722
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    References listed on IDEAS

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    1. Neil Kellard & Denise Osborn & Jerry Coakley & John C. Nankervis & Periklis Kougoulis & Jerry Coakley, 2015. "Generalized Variance-Ratio Tests in the Presence of Statistical Dependence," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(5), pages 687-705, September.
    2. Chris Brooks & Konstantina Kappou & Charles Ward, 2004. "Gambling on the S&P 500's Gold Seal: New Evidence on the Index Effect," ICMA Centre Discussion Papers in Finance icma-dp2004-04, Henley Business School, University of Reading.
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    Cited by:

    1. Hirofumi Suzuki, 2015. "Comovement and index fund trading effect: evidence from Japanese stock market," Economics Bulletin, AccessEcon, vol. 35(2), pages 949-958.

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