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http://ssrn.com/abstract=2288184
 
 

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Regression Discontinuity and the Price Effects of Stock Market Indexing


Yen-Cheng Chang


Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University; China Academy of Financial Research (CAFR)

Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Inessa Liskovich


Princeton University - Department of Economics; Princeton University - Industrial Relations Section

June 2, 2014

Review of Financial Studies, Forthcoming

Abstract:     
The Russell 1000 and 2000 stock indices comprise the first 1000 and next 2000 largest firms ranked by market capitalization. Small changes in the capitalizations of firms ranked near 1000 move them between these indices. Because the indices are value-weighted, more money tracks the largest stocks in the Russell 2000 than the smallest in the Russell 1000. Using this discontinuity, we find that additions to the Russell 2000 result in price increases and deletions in price declines. We then identify time trends in indexing effects and the types of funds that provide liquidity to indexers.

Number of Pages in PDF File: 53

Keywords: index inclusion, regression discontinuity

JEL Classification: G11, G12, G14, G2

Accepted Paper Series


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Date posted: July 3, 2013 ; Last revised: June 11, 2014

Suggested Citation

Chang, Yen-Cheng and Hong, Harrison G. and Liskovich, Inessa, Regression Discontinuity and the Price Effects of Stock Market Indexing (June 2, 2014). Review of Financial Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2288184 or http://dx.doi.org/10.2139/ssrn.2288184

Contact Information

Yen-Cheng Chang (Contact Author)
Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University ( email )
211 West Huaihai Road
Shanghai, 200030
China
China Academy of Financial Research (CAFR)
211 West Huaihai Road
Shanghai, 200030
China

Harrison G. Hong
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Inessa Liskovich
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Industrial Relations Section ( email )
United States
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