Historical Backtesting of Stocks Reveals: MSCI Removal May Already Be Priced In

The debate surrounding MicroStrategy’s (MSTR) potential exclusion from the MSCI index has created significant uncertainty for investors. Yet, when we examine what backtesting of historical stocks data shows us, the answer to whether removal would cause a sharp decline becomes surprisingly clear: the market has likely already absorbed this negative development. MSTR’s dramatic 51% drop from its October peak—substantially steeper than Bitcoin’s decline during the same period—suggests that smart money has already front-run the anticipated decision. This pattern aligns with what decades of historical index adjustments reveal about how stock prices truly respond to removal events.

Why Index Inclusion Matters: Understanding MSCI’s Influence on Stock Performance

To grasp why the MSCI decision carries such weight, we first need to recognize the extraordinary reach of this index. The MSCI index isn’t merely a ranking tool; it functions as the foundational benchmark guiding trillions of dollars in global asset allocation decisions.

The mechanism works as follows: massive quantities of capital—flowing through ETFs managed by firms like iShares and Vanguard, as well as through dedicated index funds—are contractually obligated to precisely mirror MSCI constituents. When a company faces removal, these index-tracking funds become forced sellers. On the effective date (typically at month-end), they must liquidate their positions regardless of market conditions or valuation levels. This creates a mechanical selling pressure that traditionally would be expected to crush prices.

Beyond the passive fund ecosystem, actively managed portfolios also face constraints. Many institutional funds operate under mandates that restrict holdings to companies within major indices—a risk control mechanism designed to ensure portfolio quality. When a firm drops out of MSCI, these funds feel compelled to reduce or eliminate their stakes. The cascading effect combines to shrink available liquidity and depress valuation multiples.

What Backtesting Data Shows: The Real Timeline of Price Decline

However, a detailed examination of historical stocks that underwent MSCI removal reveals a counterintuitive pattern. The traditional assumption—that prices collapse when removal is announced—doesn’t hold up under scrutiny. Instead, backtesting demonstrates that the true market impact follows a three-phase pattern that consistently repeats.

Consider the most recent example: the November 2025 MSCI index rebalancing. Companies including Whirlpool, Sensata Technologies, and ZoomInfo were removed from the index, with the announcement arriving on November 5th and the delisting taking effect on November 25th.

Phase One—Anticipation Period (100 days prior to announcement): This is when genuine damage occurs. Stocks destined for removal experience severe pressure, declining by an average of 24.5%. The market, operating on incomplete information and deteriorating fundamentals, begins pricing in exclusion through widening bid-ask spreads and reduced institutional interest. What appears to be a coordinated exit by “smart money” actually reflects growing recognition that removal is becoming increasingly probable.

Phase Two—Announcement Through Effective Date: Here’s where backtesting of these historical stocks delivers surprising results. Upon official MSCI disclosure of the removal decision, prices stabilize dramatically. The average decline during this window measures just 0.7%—barely noticeable in market terms. Some securities, like Whirlpool, even posted gains (2.1% rebound) as oversold conditions reversed and technical traders took positions.

Phase Three—Post-Removal: Following the actual delisting date, several components of the removed cohort recovered substantially. Sensata, for example, recorded gains approaching 10% as forced selling ceased and fundamentals could reassert themselves. The pattern becomes evident: the maximum downside has already materialized well before official action.

Translating this to MSTR: the stock’s 51% depreciation from October levels represents a decline that exceeds Bitcoin’s pullback during the identical timeframe. This outsized weakness mirrors precisely what backtesting of historical index removals predicts should happen during the “anticipation phase”—when uncertainty peaks and negative sentiment dominates. The probability is high that much of the MSCI-related downside has already been absorbed.

Nasdaq 100 Signals a Critical Message

An important secondary indicator supports the thesis that MSTR’s fundamentals haven’t fundamentally deteriorated. The Nasdaq 100 index, while employing different selection criteria than MSCI, shares a core emphasis: market capitalization and trading liquidity are paramount requirements.

Recently, the Nasdaq 100 made a significant announcement: it would retain MicroStrategy as a constituent stock. This decision carries weight because the Nasdaq 100 imposes stringent standards—only the largest, most-liquid non-financial technology companies qualify. That MSTR cleared this bar demonstrates that, at the component level, its average daily trading volume and free-float market capitalization remain robust and competitive. While MSCI incorporates qualitative industry classification considerations that Nasdaq may not, MSTR’s survival in the Nasdaq 100 signals that hard metrics remain solid.

The Asymmetric Opportunity Framework

Viewing the situation through a probabilistic lens reveals an attractive risk-reward dynamic. MSCI’s removal decision is definitively a headwind factor. Yet as backtesting of historical stocks removal events demonstrates, much of this negativity becomes priced in well before the actual announcement and delisting.

The true catalysts going forward differ markedly based on outcome:

If MSCI decides to retain MSTR as a constituent—a possibility suggested by the Nasdaq 100’s retention and reasonable liquidity metrics—the result could be a significant positive shock. Markets have grown accustomed to negative scenarios; positive surprises deliver outsized gains.

Conversely, if removal does occur, historical patterns suggest limited additional downside. The correction phase has largely completed during the prior 100-day anticipation window. Execution typically produces minimal further damage—perhaps an additional 0.7% to 1% decline based on the backtesting data.

Looking Forward: Bitcoin Remains the Primary Driver

Ultimately, backtesting and historical analysis illuminate an important reality: while the MSCI decision matters tactically, it doesn’t constitute the fundamental driver of MSTR’s long-term direction. That distinction belongs entirely to Bitcoin. MSTR functions as a leveraged vehicle on Bitcoin’s price trajectory—a tool through which investors gain concentrated exposure to digital assets.

The January 15th announcement window presents investors with clarity on one variable. Whether that clarity brings relief or disappointment, the broader trend that will determine MSTR’s fate remains the movement of Bitcoin itself. For investors seeking exposure to both Bitcoin and the company’s strategic bitcoin accumulation strategy, the current risk-reward framework warrants close attention as this key decision point approaches.