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Comovement and index fund trading effect: evidence from Japanese stock market

Author

Listed:
  • Hirofumi Suzuki

    (Sumitomo Mitsui Banking Corporation)

Abstract

We examine comovement in two famous Japanese stock indexes (the Nikkei 225 and the MSCI Japan) by employing the Barberis et al. (2005) methodology. First, we compare the equal-weighted Nikkei 225 with the value-weighted Nikkei 225 and find that the index fund trading effect is strong in the medium term. Second, we confirm that there is stronger comovement in the Nikkei 225 than in the MSCI Japan, which indicates the importance of "indexing demand."

Suggested Citation

  • Hirofumi Suzuki, 2015. "Comovement and index fund trading effect: evidence from Japanese stock market," Economics Bulletin, AccessEcon, vol. 35(2), pages 949-958.
    • Handle: RePEc:ebl:ecbull:eb-14-00303
    as

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    References listed on IDEAS

    as
    1. Chakrabarti, Rajesh & Huang, Wei & Jayaraman, Narayanan & Lee, Jinsoo, 2005. "Price and volume effects of changes in MSCI indices - nature and causes," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1237-1264, May.
    2. Shleifer, Andrei, 1986. "Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    3. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, Decembrie.
    4. Vijh, Anand M, 1994. "S&P 500 Trading Strategies and Stock Betas," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 215-251.
    5. Okada, Katsuhiko & Isagawa, Nobuyuki & Fujiwara, Kenya, 2006. "Addition to the Nikkei 225 Index and Japanese market response: Temporary demand effect of index arbitrageurs," Pacific-Basin Finance Journal, Elsevier, vol. 14(4), pages 395-409, September.
    6. Harris, Lawrence E & Gurel, Eitan, 1986. "Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-829, September.
    7. J. Coakley & P. Kougoulis & J. C. Nankervis, 2008. "The MSCI-Canada index rebalancing and excess comovement," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1277-1287.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    comovement; Beta; Index inclusion;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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