MSCI Indices Research Articles

The impact of inclusion in the MSCI EM index on firms' investment efficiency：Evidence from China

This paper investigates the impact of A-share inclusion in the MSCI index on corporate investment efficiency. Using the inclusion of A-shares in the MSCI index on June 1, 2018 as a quasi-natural experiment, the results of the PSM-DID model show that the inclusion of A-shares in the MSCI index significantly reduces corporate investment efficiency. Further analysis reveals that inefficient investment mainly occurs in over-invested firms, non-state-owned firms, and firms audited by Big 4 accounting firms. Firms with low managerial ownership and high degree of surplus management are more likely to overinvest after A-share inclusion in the MSCI index, which leads to a decrease in investment efficiency. Firms with high analyst attention and low equity checks and balances increase their investment after A-share inclusion in the MSCI index, and the influences of decision-making power and control can be the triggers to reduce investment efficiency.

The Impact of Zodiac Signs on Sales Performance and Turnover Rates: A Case Study of Kinlong Hardware in China

As a senior executive at a Chinese company included in the MSCI Index, the author considered the personality mix of marketing personnel when recruiting, aiming to balance performance and stability. In practice, I found that the performance of marketing personnel is closely related to their zodiac signs, although biases from senior management, particularly in HR, had to be carefully mitigated to ensure objective results. Salespeople with fire signs and other extroverted signs often perform better but are also more impulsive, easily influenced by external environments, and more likely to leave. We collected sales personnel data from the company’s Oracle database from 2014 to 2023, with a valid sample size of 9,291 people, using the logit model and OLS model to explore the performance and stability of employees with different zodiac signs. Results show that, holding other factors constant, extroverted signs have a 2.37% higher probability of turnover and an 8.00% higher average performance than introverted signs. This data, while novel, is framed within the limitations of using zodiac signs as a proxy for personality traits, a subject where more established scientific literature is lacking. We recommend that companies configure their sales teams with 60% extroverted personnel to drive innovation and 40% introverted personnel to ensure team stability.

Emerging Stock Market Integration and Corporate Bond Credit Spreads

ABSTRACT Stock market integration into the world financial markets has been a common and important practice in emerging countries over the past several decades. Relying on the staggered inclusion of China A-shares into MSCI indexes, we employ a difference-in-differences analysis and find that bond credit spreads of firms significantly decrease after the firms’ stock securities are included in the MSCI indexes. We also find that stock market integration reduces credit spreads by improving the stock liquidity, firm reputation, and alleviating information asymmetry. The effect is more pronounced among firms with greater financial constraints or higher performance volatility. Overall, our study provides evidence that emerging stock market integration can generate bond market benefits for firms.

The examination of the impact of global uncertainties on developed and developing markets with structural VAR model

This study aims to examine the impact of global uncertainties on developed and developing markets with the help of the Structural VAR model. Due to the integration of financial markets, it is of great importance for securities market investors to be able to predict the direction of the markets. One of the variables to be used to predict the development of financial markets is the MSCI indices. In the study, the Developed Markets Index (MSCIWO) was used to represent developed markets, and the MSCIEF Emerging Markets Index was used to represent emerging markets. In the study, two separate models were established to measure the impact of global uncertainties on developed and developing markets. Using monthly data from 2014-2023, this study identifies differences between developed and emerging markets and shows how these markets react to different types of uncertainty. The results obtained from the study show that the effect of the Global Economic Policy Uncertainty Index (GEPU) variable on developed and developing capital markets is positive in the long term. Additionally, it was determined that the Geopolitical Risk Index (GPR) variable has a long-term negative impact on both markets. Analysis results indicate that the effect of the VIX variable on advanced markets is not significant, whereas it shows a negative impact on developing markets.

Capital market opening and share repurchases: Evidence from China's listed companies absorbed in the MSCI Emerging Markets Index

The inclusion of Chinas A-shares in the MSCI Emerging Markets Index (hereafter referred to as the MSCI index) represents a significant milestone in the opening of China's capital market. Using this inclusion as a quasi-natural experiment, this study examines the impact of capital market liberalisation on share repurchases. Our findings indicate that the opening of the capital market has a significantly positive effect on share repurchases, a conclusion that remains robust across a series of robustness tests. Mechanism analysis reveals that capital market liberalisation increases the risk of a stock price crash and encourages firms to repurchase shares as a signalling mechanism.

MSCI index inclusion and price efficiency evidence from China

In the recent years, foreign institutional investors have significant impact on Chinese market. We adopt 2017 MSCI index inclusion in the Chinese market to test the exogenous shock of foreign institutional investors on the efficiency of stock price. The results show that the foreign institutional investors increase the price efficiency. The effect is more significant in state-owned enterprises, the enterprises with higher degree of judicial civilization and analyst attention. The results remain robust after multiple MSCI sequent expansions. Foreign institutional investors are the main drive for firm-specific price efficiency. Our paper provides evidence for the positive role of foreign institutional investor in Chinese market.

The internationalization of capital market and corporate innovation capabilities: A quasi-natural experiment on the inclusion of China's A-shares in the MSCI index

The capital market serves to link capital with the real economy. This study examines the long-term effects of capital market internationalization from the perspective of real economy corporate innovation capabilities. To do so, a quasi-natural experiment is conducted in which China's A-shares are included in the MSCI index to construct a time-varying PSM-DID model and study the impact of capital market internationalization on corporate innovation inputs and outputs. The results show that bringing China's A-shares in the MSCI index significantly improves corporate innovation capability through signaling and supervisory effects. Specifically, the internationalization of the capital market reduces corporate financing costs, increases corporate risk-taking, improves long-term institutional investors' shareholding, and alleviates managerial myopia. Furthermore, these effects were found to be more significant for both high-management shareholding enterprises and low-industry competition enterprises. The research conclusions support the proposition to further unleash corporate innovation, and as such, they have important implications for promoting the internationalization of the capital market.

Analysis of Investor Motivation to Buy GOTO and BUKA Shares

This study aims to determine the motivation of investors to buy shares in Gojek Tokopedia (GOTO) and Bukalapak (BUKA) companies. Investment motivation is a state in a person's personality that encourages the individual's desire to carry out certain activities to invest. In this study, a descriptive type of research is used which is one of the qualitative methods with the aim of the social situation to be studied. The data collection method used in this research is the Documentation technique. This research uses the literature study method, with the research objective of analyzing the motivation of investors to buy BUKA and GOTO shares. The result of this study is that although the profit generated by GOTO from 2022 to 2023 has decreased, GOTO investors continue to increase. This is due to GOTO shares which recently made it into the large cap list in the FTSE Global Asia Pacific series index (effective closing March 17, 2023) and the MSCI index (effective June 1, 2023). that is, GOTO companies have good fundamental movements and liquidity. Investor motivation in Bukalapak is quite high as evidenced by the increase in share price triggered by many investors.

PERFORMANCE OF MSCI ISLAMIC INDICES: A COMPARATIVE STUDY OF MALAYSIA AND GULF COUNTRIES

Introduction: The Islamic finance industry has attracted increasing research interest, particularly in Islamic equity markets, in both academia and the corporate world during the past few decades. However, COVID-19 has caused a downturn in the Islamic stock markets. This study empirically explores and compares the performance of the MSCI Indices of Malaysia and each of the other MSCI Islamic indices in Gulf Cooperation Council (GCC) countries. Methods: To address the research questions, time series techniques, namely, the unit root test, cointegration, long-Run Structural Model (LRSM), Vector Error Correction Model (VECM), variance decomposition, impulse response, and persistence profile techniques, were used as the main method by utilizing monthly data from August 15, 2011, to November 15, 2020. Results: The results show that cointegration exists between the Malaysian Islamic indices and the six Islamic indices of GCC countries, which indicates that diversification benefits are limited in the long run because the indices move together. Additional results show a significant causality among the indices in both the short-run and long-run. (as shown in the LRSM and VECM tests). Conclusion and suggestion: The findings may have significant implications for portfolio diversification of Islamic indices among investors interested in Shariah-compliant securities in Malaysia and GCC countries, particularly in the COVID-19 era. Further research can be conducted for an in-depth analysis to examine the performance of these indices in terms of risk and return after the COVID-19 era using a more advanced technique.

The relationship between political instability and stock market performance: An analysis of the MSCI index in the case of Pakistan.

The stock market is the barometer of the economy that reflects the overall health and direction of the economic development and is affected by different factors including social, environmental and political. It is important to investigate the effect of the political instability on the stock market performance, especially on emerging economies. Therefore, we aim to study the relationship between political instability and stock market performance in Pakistan. To meet our objectives, we used past data from 1996 to 2021. Data are collected from the DataStream data base. MSCI indices are used as the proxy for the Stock market performance of the selected country. World governance six indicators are used in the study as the explanatory variable concentrating the political instability index as the main explanatory variable. Regression analysis is used but two-way robustness analysis was done for the accuracy of the findings through GMM methods and taking GDP as another endogenous variable. Our findings shows that the political stability has significant positive impact on the stock market performance while, political instability has negative impact on stock market performance. Moreover, other governance indicators has a significant positive impact on performance. However, political instability disrupts the operations and economical activities that leads to decrease the investor confidence and also decrease the foreign investment with the increment of the risk in the country. Moreover, our study has some implications for investors to develop the diversified portfolio to minimize the risk and policy makers can increase their foreign direct investment within the economy by controlling the political instability.

Connectedness between Pakistan’s Stock Markets with Global Factors: An Application of Quantile VAR Network Model

This study aims to provide important insights regarding the integrated structure of global factors and Pakistan’s leading sector-level indices by estimating the dynamic network and pairwise connectedness of the global crude oil index, MSCI index, European economic policy uncertainty index, and important sector-level indices of Pakistan based on QVAR using daily frequency over the period of 20 years from 2002 to 2022. The findings demonstrate high interconnectedness among global factors indices and Pakistan’s leading sector-level indices. The results of net directional connectivity showed that the EPEUI, WTI, and MSCI indices are the “net receivers” of volatility spillover. At the same time, the financial and energy sectors are the “net transmitter” of shocks. Connectedness is high amid financial upheavals. The research findings provide crucial insights for policymakers, businesses, portfolio managers, and investors.

Forecasting BDI Sea Freight Shipment Cost, VIX Investor Sentiment and MSCI Global Stock Market Indicator Indices: LSTAR-GARCH and LSTAR-APGARCH Models

Prediction of the economy in global markets is of crucial importance for individuals, decisionmakers, and policies. To this end, effectiveness in modeling and forecasting the directions of such leading indicators is of crucial importance. For this purpose, we analyzed the Baltic Dry Index (BDI), Investor Sentiment Index (VIX), and Global Stock Market Indicator (MSCI) for their distributional characteristics leading to proposed econometric methods. Among these, the BDI is an economic indicator based on shipment of dry cargo costs, the VIX is a measure of investor fear, and the MSCI represents an emerging and developed county stock market indicator. By utilizing daily data for a sample covering 1 November 2007–30 May 2022, the BDI, VIX, and MSCI indices are investigated with various methods for nonlinearity, chaos, and regime-switching volatility. The BDS independence test confirmed dependence and nonlinearity in all three series; Lyapunov exponent, Shannon, and Kolmogorov entropy tests suggest that series follow chaotic processes. Smooth transition autoregressive (STAR) type nonlinearity tests favored two-regime GARCH and Asymmetric Power GARCH (APGARCH) nonlinear conditional volatility models where regime changes are governed by smooth logistic transitions. Nonlinear LSTAR-GARCH and LSTAR-APGARCH models, in addition to their single-regime variants, are estimated and evaluated for in-sample and out-of-sample forecasts. The findings determined significant prediction and forecast improvement of LSTAR-APGARCH, closely followed by LSTAR-GARCH models. Overall results confirm the necessity of models integrating nonlinearity and volatility dynamics to utilize the BDI, VIX, and MSCI indices as effective leading economic indicators for investors and policymakers to predict the direction of the global economy.

Stock Return Response to Changes in MSCI Standard and Small Cap Index Composition for Turkey

The effect of index reconstitution on stock return and volume have been one of the controversial subjects in finance. Although, there are several researches, which are analyzing the domestic stock market index effect on stocks, a few studies focused on the effects of an international index. By the use of event study methodology, this paper analyzes the price effect of changes in constituents of two MSCI indexes (Standard Index and Small Cap Index) for Turkish companies as of announcement and effective dates. Overall, there are four analyses; namely, addition to Small Cap Index with respect to announcement (effective) day, deletion from Small Cap Index with respect to announcement (effective) day, addition to Standard Index with respect to announcement day (effective), and deletion from Standard Index with respect to announcement day (effective). The findings of the study present that index effect may appear or disappear, depending on the index, on which index reconstitution is being analyzed. Moreover, existence of the index effect is also subject to event day definition, which may be either announcement date or effective date of the index event.

Emerging Market Globalization and Corporate ESG Engagement: The Role of MSCI Index

Emerging Market Globalization and Corporate ESG Engagement: The Role of MSCI Index

Arbitrage Opportunities from MSCI Index Reconstitutions in Asian Stock Markets

Arbitrage Opportunities from MSCI Index Reconstitutions in Asian Stock Markets

COVID 19 Outbreak and Tokyo 2020 Olympic Games: A Perspective from Japan’s Economy and Capital Market

This study highlights the key impacts of hosting an international sports event, Tokyo 2020 Olympic Games, during the period of deadliest contagious disease outbreak in history, COVID 19. The perspective is analysed in terms of the performance of capital market, investment market and sectoral market by the indexes of TOPIX, Stock Market, Bond Market, Foreign Exchange, FTSE, MSCI, and sectoral index of Air Transportation, Construction, Pharmaceutical which shows different range of fluctuation.

Can Bitcoin help money cross the border: International evidence

This paper constructs a regional monthly co-movement indicator (Dynamic Conditional Correlation, DCC) between Bitcoin and MSCI indices of 21 regions based on the DCC-GARCH model. DCCs in most sample regions are positive, implying a strong linkage of Bitcoin and local stock markets. Furthermore, a region's capital account control of has positive impact on DCC, and the impact is more pronounced in regions with better money laundering supervision and less developed financial systems. This implies that Bitcoin, with investment and illegal purposes, tends to be likely used as an unregulated global currency to channel the funds from home to abroad. Finally, we also find that the rise in DCC will increase the pressure on the local financial system. Our study can assist cryptocurrency investors and regulators in making more informed decisions.

SELECTING BIVARIATE COPULA MODELS USING IMAGE RECOGNITION

AbstractThe choice of a copula model from limited data is a hard but important task. Motivated by the visual patterns that different copula models produce in smoothed density heatmaps, we consider copula model selection as an image recognition problem. We extract image features from heatmaps using the pre-trained AlexNet and present workflows for model selection that combine image features with statistical information. We employ dimension reduction via Principal Component and Linear Discriminant Analyses and use a Support Vector Machine classifier. Simulation studies show that the use of image data improves the accuracy of the copula model selection task, particularly in scenarios where sample sizes and correlations are low. This finding indicates that transfer learning can support statistical procedures of model selection. We demonstrate application of the proposed approach to the joint modelling of weekly returns of the MSCI and RISX indices.

Stock Market Reaction to Covid-19 Vaccination Rate: International Study

Objective: In this study, the relationship between the Covid-19 vaccination rates in different countries and the performance of stock market indices were examined. The study aims to supply further evidence for policymakers to promote vaccination programs.
 Methods: In the study, stock market performances and Covid-19 vaccination data of a total of 49 countries in the MSCI indices were used. Countries are sorted and grouped according to the date they reached the 10%, 50%, and 75% vaccination rates. Afterward, t-tests were used to determine whether there was a difference between the stock market returns of the countries in different groups according to their vaccination performances.
 Results: This research shows that countries with rapid Covid-19 vaccination have lower volatility and higher performance in the stock markets. It has been determined that the stock market performances are higher in the countries which reached the 10% and 50% vaccination level of the population earlier. No statistically significant relationship was found between reaching the 75% vaccination level and the stock market performance. The first quartile of countries that completed 10% vaccination earlier have %9,7 higher stock market performance on average between 31.12.2020-28.05.2021 than the countries in the last quartile. Research results are also robust when tested separately for developed and emerging markets.
 Conclusions: The results of the study show that vaccination has a positive contribution to financial markets. It is thought that the findings obtained in the research provide important information for investors and policymakers.

Testing The Validity of Postmodern Theory of Portfolio from Market Based Model: An Empirical Evidence from Emerging Economy of Pakistan

This study is aimed to test the validity of the postmodern theory of portfolio with the help of the market-based model, and 100 companies’ data has been used for the period 1st Jan, 2005 to 1st Feb, 2021 for listed companies at PSX. The explanatory power of CAPM is tested with the risk measures beta, idiosyncratic risk, semivariance/downside risk (Yildiz & Erzurumlu, 2018) and value at risk (VaR). Results of the GARCH (1,1) model indicates that E(R) DR and E(R) VaR has a significant impact on volatility by adding the-se explanatory measures in the variance equation. Whereas risk parameters significantly impact volatility, as shown by adding explanatory measures in the mean equation. The estimated returns and risk indicators of both global and local companies have essential explanatory capacity. In contrast, results suggest that to the MSCI index, the downward market integration is greater, and T-Bill prices may be the dominating factor.