Predatory Trading Around Russell Reconstitution

26 Pages Posted: 22 Aug 2017

See all articles by Volodymyr M. Zdorovtsov

Volodymyr M. Zdorovtsov

Acadian Asset Management LLC

Olivia Tang

Acadian Asset Management LLC

Zhan M. Onayev

Passport Capital Management

Date Written: July 2017

Abstract

Using fourteen years of history, the authors study the behavior of Russell 3000 constituents on the last business day of May when benchmark composition is determined for the ensuing annual reconstitution. The paper presents evidence consistent with predatory trading, whereby closing prices of some securities appear to be manipulated with the objective of influencing their index membership status. Specifically, the securities which are most likely to have been targets of such trading (additions closer to the bottom of the newly formed Russell 3000 list and thus more likely to have been pushed into the index) exhibit higher event-day returns, a greater commonality in those returns, and higher order flow imbalances. As expected, these effects become amplified towards the end of the trading session.

Keywords: Predatory Trading, Price Manipulation, Index Reconstitution, Order Flow

JEL Classification: G11, G12, G14, G23

Suggested Citation

Zdorovtsov, Volodymyr M. and Tang, Olivia and Onayev, Zhan M., Predatory Trading Around Russell Reconstitution (July 2017). Available at SSRN: https://ssrn.com/abstract=3021022 or http://dx.doi.org/10.2139/ssrn.3021022

Volodymyr M. Zdorovtsov (Contact Author)

Acadian Asset Management LLC ( email )

260 Franklin Street
Boston, MA 02110
United States

Olivia Tang

Acadian Asset Management LLC ( email )

260 Franklin Street
Boston, MA 02110
United States

Zhan M. Onayev

Passport Capital Management ( email )

30 Hotaling Place
San Francisco, CA
United States
415-525-8916 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
194
Abstract Views
977
rank
194,256
PlumX Metrics