NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Regression Discontinuity and the Price Effects of Stock Market Indexing

Yen-cheng Chang, Harrison Hong, Inessa Liskovich

NBER Working Paper No. 19290
Issued in August 2013, Revised in October 2013
NBER Program(s):Asset Pricing, Corporate Finance

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.

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Document Object Identifier (DOI): 10.3386/w19290

Published: 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. citation courtesy of

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