Proceedings of Global Business and Social Science Research Conference
11 - 13 May 2015, Grand Mirage Hotel, Bali, Indonesia, ISBN: 978-1-922069-75-7
Are Investors Concerned With Stock Market Upgrades?
Evidence from Multivariate Framework Analysis
Nedal Al-Fayoumi and Bana Abuzayed
This study aims to examine the return and volatility responses of the Qatar, Dubai and Abu
Dhabi stock exchanges to their MSCI upgrade announcements from frontier to emerging
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markets using daily data from the period June 11 , 2012 to June 15 , 2014. We use an
extension of the event study dummy methodology by applying a tri-variate BEKK VAR(1)GARCH(1, 1) framework. In most cases, our results revealed strong evidence of cross
conditional mean interdependence in addition to shock and volatility spillover among these
markets. Moreover, consistent with the price pressure hypothesis, the MSCI upgrade initially
leads to positive feedback from investors. Positive feedback is based on the belief that this
announcement will attract foreign investors who play a vital role in improving the performance
of these markets. However, this reaction also leads to a positive shift in volatility due to
speculative activities by retail investors. The study confirms evidence of the active attitude of
investors the moment the upgrade is in effect. As a result, after meeting the demand of
passive funds investors they sell their held stocks on the actual upgrade day. This early sell is
done due to the investors’ belief that stocks are highly valued during that period.
JEL: G10, G14, G18
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Prof. Nedal Al-Fayoumi,*Corresponding Author, Department of Finance and Economics, Qatar University,
Doha, 2713 Qatar. E-mail: nedal.alfayoumi@qu.edu.qa, Tel: +974-70505585
Dr. Bana Abuzayed, Department of Finance and Economics, Qatar University, Doha, 2713 Qatar, E-mail:
babuzayed@qu.edu.qa, Tel: +974-77660215