Global Versus Local Asset Pricing: Evidence from Arbitrage of the MSCI Index Change

52 Pages Posted: 14 Mar 2009 Last revised: 17 Mar 2009

See all articles by Harald Hau

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

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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

Hau, Harald, Global Versus Local Asset Pricing: Evidence from Arbitrage of the MSCI Index Change (March 13, 2009). Available at SSRN: https://ssrn.com/abstract=1359116 or http://dx.doi.org/10.2139/ssrn.1359116

Harald Hau (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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