The effect of country-specific index trading on closed-end country funds
an empirical analysis
DOI:
https://doi.org/10.1016/S1057-0810(01)00067-1Keywords:
International financial markets, Market efficiency, InvestmentsAbstract
The American Stock Exchange initiated trading in 17 World Equity Benchmark Shares (acronym “WEBS”TM) in April 1996. WEBS are index funds designed to track the Morgan Stanley Capital International (MSCI) indexes. We examine the effect of this event on closed-end country funds (CECFs) and find that percentage discounts increase. CECFs with a corresponding WEBS index experience the largest increase and also show a decline in trading volume. We attribute these results to (1) the effects of increased competition and (2) a reduction in the market segmentation premium. Since additional WEBS have begun trading, and other approvals may follow, similar effects could be experienced in the future. © 2001 Elsevier Science Inc. All rights reserved.
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