Working Paper: CEPR ID: DP14234
Authors: Francesco Franzoni; Rabih Moussawi; Itzhak Bendavid
Abstract: A growing literature uses the Russell 1000/2000 reconstitution event as an identification strategy to investigate corporate finance and asset pricing questions. To implement this identification strategy, researchers need to approximate the ranking variable used to assign stocks to indexes. We develop a procedure that predicts assignment to the Russell 1000/2000 with significant improvements relative to previous approaches. We apply this methodology to extend the tests in Ben-David, Franzoni, and Moussawi (2018).
Keywords: Russell; institutional investors; ETFs; volatility
JEL Codes: G12; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| new ranking variable (C29) | prediction of stock assignments to the Russell 1000 and 2000 indexes (G17) |
| improved ranking variable (C29) | significance of findings on ETF ownership and stock volatility (C58) |
| new ranking variable (C29) | reduction of misclassification (C52) |
| reduction of misclassification (C52) | more accurate basis for causal inference (C22) |
| index assignment (C43) | stock behavior (G10) |
| stocks assigned to the Russell 2000 (G12) | higher ETF ownership (G23) |
| stocks assigned to the Russell 2000 (G12) | higher stock volatility (G17) |
| one-standard-deviation increase in ETF ownership (G40) | increase in stock volatility (G17) |