Abstract
This paper mainly studies whether the inclusion of China’s A-shares in the MSCI (Morgan Stanley Capital International) index improved the trading activity. Taking all China’s A-share stocks as samples and using the trading data of four years from 2016 to 2019, this paper designs corresponding Difference-in-Difference models and conducts empirical research. It is found that the inclusion of MSCI index does reduce the turnover rate of stocks and the level of activity in stock trading decrease. Two reasons account for this: on the one hand, institutional investors with more long-term capital and more robust investment styles have entered into A-share market; on the other hand, investors have become relatively more consistent in the value of the MSCI component stocks because of the highly recognition of global capital markets.
Highlights
In recent years, China has been pushing forward steadily the process of opening up its capital market and carried out successively RQDII, “Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect”
Different from that, this paper mainly focuses on whether the inclusion of MSCI index will increase the activity of A-share market since it can bring a lot of funds and is more closely connected to international capital
By comparing the difference in amplitude of variation of turnover rate between the treatment group and the control group before and after the list was published, the following conjectural can be preliminarily made: stock trading activity decreased after inclusion in the MSCI index
Summary
China has been pushing forward steadily the process of opening up its capital market and carried out successively RQDII, “Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect”. It is announced that China’s A-shares will be included into the MSCI index, which is undoubtedly a milestone event in the process of China’s capital market opening to the outside world. Different from that, this paper mainly focuses on whether the inclusion of MSCI index will increase the activity of A-share market since it can bring a lot of funds and is more closely connected to international capital. The main contribution of this paper is to provide a new empirical case to the research field of “the impact of inclusion of MSCI index on China A-shares” by studying the changes of stock trading activity before and after the inclusion of China A-share in MSCI index for totally five times in the past three years. The structure of remaining article is as follows: the second part is literature review; the third part is the data & models; the fourth part is the empirical results & analysis; the last part is the conclusion & policy recommendations
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