Regression Discontinuity and the Price Effects of Stock Market Indexing

Yen-Cheng Chang, Harrison Hong and Inessa Liskovich

No 19290, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Studies find price increases for additions to the S&P 500 index but no decreases for deletions. Additions come with good earnings news, suggesting these studies are not just measuring an indexing effect. We develop a regression discontinuity design using Russell Indices for cleaner identification. Stocks are assigned to indices based on their end-of-May market capitalizations. Stocks ranked just below 1000 are in the Russell 2000. The indices are value-weighted so these stocks receive index buying whereas those just above 1000 have close to none. Using this random assignment, we find price effects for both additions and deletions.

JEL-codes: G02 G12 (search for similar items in EconPapers)
Date: 2013-08
Note: AP CF
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Citations: View citations in EconPapers (43)

Published as Yen-Cheng Chang & Harrison Hong & Inessa Liskovich, 2015. "Regression Discontinuity and the Price Effects of Stock Market Indexing," Review of Financial Studies, vol 28(1), pages 212-246.

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Journal Article: Regression Discontinuity and the Price Effects of Stock Market Indexing (2015)
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