No AccessPolicy Research Working Papers25 Oct 2021The Anatomy of Index Rebalancings: Evidence from Transaction DataAuthors/Editors: Mariana Escobar, Lorenzo Pandolfi, Alvaro Pedraza, Tomas WilliamsMariana Escobar, Lorenzo Pandolfi, Alvaro Pedraza, Tomas Williamshttps://doi.org/10.1596/1813-9450-9770SectionsAboutPDF (0.6 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract: This paper exploits a novel dataset covering the universe of transactions in the Colombian Stock Exchange to analyze episodes of additions to and deletions from MSCI equity indexes. The analysis finds that additions and deletions have large price effects: the median cumulative abnormal return in absolute value is 5.5 percent. The paper shows that these price effects are due to large demand shocks by different classes of international investors—not only passive funds and ETFs, but also active mutual funds, pension funds and government funds—which are not absorbed by arbitrageurs. Consistent with recent asset pricing models with limits to arbitrage, stock demand curves are estimated to be very inelastic: the demand elasticity for the median stock in the sample is −0.34, implying that a 1 percent increase in the demand for the stock increases its price by 2.9 percent. Previous bookNext book FiguresreferencesRecommendeddetails View Published: September 2021 Copyright & Permissions KeywordsINDEX REBALANCINGINSTITUTIONAL INVESTORSTOCK MARKET INDEXPASSIVE FUNDARBITRAGEDEMAND ELASTICITY PDF DownloadLoading ...