Working Papers

Benchmarking Intensity (with A. Pavlova)

Presented at: Adam Smith Workshop, ASSA Meetings, European Winter Finance Conference, Finance Seminar at London Business School, INSEAD Finance Symposium, Midwest Finance Association, NBER Behavioral Finance, SFS Cavalcade North America, University of Bath, Vienna Graduate School of Finance, and World Symposium on Investment Research.
Scheduled at: AFA 2022, EFA 2021.

Benchmarking incentivizes fund managers to invest a fraction of their funds’ assets in their benchmark indices, and such demand is inelastic. We construct a measure of inelastic demand a stock attracts, benchmarking intensity (BMI), computed as its cumulative weight in all benchmarks, weighted by assets following each benchmark. Exploiting the Russell 1000/2000 cutoff, we show that changes in stocks’ BMIs instrument for changes in ownership of benchmarked investors. The resulting demand elasticities are low. We document that both active and passive fund managers buy additions to their benchmarks and sell deletions. Finally, an increase in BMI lowers future stock returns.

Also available on SSRN.

Work in Progress

Two APs are Better Than One: ETF Mispricing and Primary Market Participation (with E. Gorbatikov)