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Feasibility Study for the creation of a CMU Equity Market Index Family
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Feasibility Study for the creation of a CMU Equity Market Index Family
Executive summary
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Only a selection of listed companies is included in the European equity indices managed by international index providers. Due to the underlying index methodology currently in use, existing equity indices mostly comprise large caps listed on developed markets. Only about half of the equity markets in the EU are classified as developed markets; (DM) the others do not meet the respective DM criteria
as defined by index providers such as MSCI and FTSE Russell. This happens even though such markets are similar to the DM members of the European single market and meet their qualitative criteria, and means that most companies are excluded from well-known international indices. This has an impact on smaller fragmented capital markets such as those in the Baltics states, Central, Eastern and South Eastern Europe. It is worth highlighting that in most cases index providers construct and maintain country indices separately and then aggregate them into various regional composites. However, there are special circumstances in which European countries classified as DM and countries in the West African Economic and Monetary Union (WAEMU) are classified as single markets and constructed according to a combined equity universe – an ongoing approach by MSCI reinforced during the 19 February 2019 public announcement. This allowed for WEAMU countries’ securities to be included in global indices by the MSCI, even though none of these countries would have met the size and liquidity criteria individually. This approach is appropriate for the EU member states and will be further promoted via the CMU Index Family proposal. Exclusion from indices puts markets and individual stocks at a significant disadvantage. Since they are less often considered by international institutional investors, the capital supply and liquidity in the market are reduced.
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Published:
2020-07-20
Corporate author(s):
CEPS
,
Directorate-General for Financial Stability, Financial Services and Capital Markets Union
(
European Commission
)
,
NorthGrant Consulting
Personal author(s):
Di Salvo, Mattia
;
Musmeci, Roberto
;
Berk Skok, Aleš
;
Alcidi, Cinzia
;
Lončarski, Igor
;
Groen, Willem Pieter de
;
Oliinyk, Inna
Themes:
Economy — Finance
Subject:
capital market
,
economic indicator
,
European Union
,
feasibility study
,
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PDF
ISSN
ISBN
978-92-76-03741-5
DOI
10.2874/724400
Catalogue number
EV-01-19-457-EN-N
PDF
ISBN
978-92-76-03741-5
DOI
10.2874/724400
Catalogue number
EV-01-19-457-EN-N
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