Do international investors’ demand curves for stocks slope down too?, Working paper

Using changes in the MSCI Standard Country Indices for 29 countries between 1998 and 2001, we document that stock returns and volumes exhibit “index effects ” in international markets similar to those detected by the studies of U.S. stocks. The stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change, though part of the gains is lost after the actual change date. The stocks that are deleted from the indices, on the other hand, witness a steady and marked decline in their prices. Trading volumes increase significantly and remain at high levels after the change date for the added stocks. There are also considerable cross-country variations in these effects. The evidence is consistent with the downward sloping demand curve hypothesis though some price-pressure effects are also present. Additions do not appear to raise liquidity of stocks, but deletions reduce i