Benchmarking Intensity

Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes

“…The price pressure hypothesis proposed by Harris and Gurel (1986) evolved separately and earlier than the BMI hypothesis proposed by Pavlova and Sikorskaya (2021). It has a different motivation, but it requires part of the same data shown in Table 6, in particular, only the data on index funds.…”

“…Chang et al. (2015) and Pavlova and Sikorskaya (2021) argue that the differences between fund holdings indexed or benchmarked to the Russell 1000 and Russell 2000 can explain the excess returns earned by stocks entering or not leaving the latter index. In addition, Pavlova and Sikorskaya construct a stock‐level measure of benchmarking intensity ( BMI ) that captures the proportion of any stock held by funds that are indexed or benchmarked (which they collectively refer to as benchmarked) to all indexes in which that stock is included.…”

“…Recall that data for funds that are benchmarked to either S&P index but are not index funds are largely unavailable, so their ownership appears as a part of other institutional ownership. In addition, Pavlova and Sikorskaya (2021) show that the same stock may be included in more than one index, so another part of other institutional ownership may be funds that track other indexes. Finally, there will be active mutual funds and hedge funds that hold a stock for speculative reasons but do not belong to any of the previous categories.…”

Discontinued Positive Feedback Trading and the Decline of Momentum Profitability

“…More broadly, this paper contributes to the literature studying the impact of demand on systematic components of asset prices. While the earlier work on index composition changes convincingly showed that demand could impact the prices of individual stocks (Harris and Gurel, 1986;Shleifer, 1986;Wurgler and Zhuravskaya, 2002;Chang, Hong, and Liskovich, 2015;Pavlova and Sikorskaya, 2021), there is relatively less consensus on whether and how demand can shape systematic price movements. 6 The style-level rating-induced positive feedback trading mechanism we identify is also consistent with the "style investing hypothesis" which has been examined in previous work (e.g., Barberis and Shleifer, 2003;Teo and Woo, 2004;Wahal and Yavuz, 2013).…”

The Anatomy of Index Rebalancings: Evidence from Transaction Data

“…This behavior is consistent with benchmark indexes being the preferred habitat for many different investors. See for instancePavlova and Sikorskaya (2020) andKashyap et al (2021).6 MSCI also provides other indexes, such as Small Caps, Value, and Growth indexes, that might differ in their composition from the Standard Indexes.7 Colombia is part of the MSCI All Country World Index, the MSCI Emerging Markets Index, and the MSCI EM Latin America, among other indexes. When a Colombian stock is announced to be included into or excluded from the Standard Indexes, this recomposition affects all of these indexes.…”