Research Insight - Keeping Indexes Investable in Evolving Markets

categories: Indexes, Americas, EMEAI, Investing (Investment Management), Asia Pacific, Asset Owners, Hedge Funds, Equities, Research Paper, ACERBI Carlo, Asset Managers (Quant or Fundamental), Banks, SZEKELY Balazs, TARANENKO Pavlo, LIEBLICH Sebastien

Market liquidity around the globe has changed drastically over the past decade, due to a combination of regulatory, technological and investment changes. Relative trading volumes on many primary trading venues have dropped by about 50% since their peak in 2009. To ensure the investability and replicability of MSCI equity indexes, we regularly monitor the liquidity of index constituents, apply liquidity screening criteria and review index construction rules and liquidity measures. Methodology enhancements include: introduction of short-term liquidity measures following drop in liquidity shortly following sub-prime crisis; use of consolidated volumes for calculating relative traded volumes for U.S. and Canadian securities as off-primary exchange liquidity skyrocketed; and improved treatment of suspended securities to enhance index replicability.

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