Abstract - Global versus Local Asset Pricing: Evidence from Arbitrage of the MSCI Index Change

Large-scale simultaneous asset demand shocks like index revisions modify stock betas marketwide
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.

Harald Hau
INSEAD Boulevard de Constance
03.Nov 2009

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