In this paper, we investigate the tactical response of pension funds to KOSPI200 index additions. We show that newly added stock in KOSPI200 exhibit significant positive abnormal returns on the announcement date, and newly added stocks experience partial price reversals after the effective date. Furthermore, we provide evidence that pension funds are buying newly added stocks after the announcement date, and they do not change their long position after the effective date. Next, we find little evidence that intense aggregate pension fund buy position predicts subsequent positive returns after effective date. Overall, our findings support the imperfect substitute hypothesis, which posits that the demand curve does not be necessarily elastic surrounding index addition events in the short-term, but also in the long-term. 

JEL classification: G11, G12
Keywords: Pension Fund, Index additions, imperfect substitutes hypothesis, Passive fund, Emerging market​