Global Versus Local Asset Pricing: Evidence from Arbitrage of the MSCI Index Change
52 Pages Posted: 14 Mar 2009 Last revised: 17 Mar 2009
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Global Versus Local Asset Pricing: Evidence from Arbitrage of the MSCI Index Change
Date Written: March 13, 2009
Abstract
Large-scale simultaneous asset demand shocks like index revisions modify stock betas market-wide and generate testable cross-sectional asset pricing implications. This paper explores the stock price dynamics around the revision of MSCI's global equity index announced in December 2000. The global nature of the MSCI index revision implies that global and local beta changes differ substantially along with the respective marginal arbitrage risk incurred to arbitrage them. Testing which beta changes and marginal arbitrage risk terms are price relevant reveals that MSCI stocks are priced globally and not locally.
Keywords: Limited arbitrage, demand shock, index revision, market segmentation
JEL Classification: G11, G14, 15
Suggested Citation: Suggested Citation
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