A Generalized Portfolio Approach to Risk Arbitrage: Evidence from the MSCI Global Index Change
We develop a framework to explore the asset pricing implications of simultaneous supply shocks in multiple assets in a setting with limits-to-arbitrage. The portfolio approach in Greenwood (2005) is generalized to allow for asymmetric information and therefore net positions of arbitrageurs against uninformed liquidity providers. We predict that pre-announcement returns due to speculation are not only positively proportional to the asset premium change of each stock (like in Greenwood), but also negatively proportional to the marginal risk contribution of the arbitrage position captured by the product of the squared return covariance matrix and the vector of supply changes. The redefinition of the MSCI international equity index in 2001 and 2002 provides a powerful event study to test these predictions. We find strong evidence in favor of our generalized model of limited arbitrage. Moreover, asset pricing effects of weight changes across stocks are quantitatively similar for domestic and foreign stocks. MSCI stocks are therefore priced globally and not locally.
国际会议
大连
英文
1-52
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）