Benchmarking intensity



Publishing details

Working Paper

Authors / Editors

Pavlova A; Sikorskaya T


Publication Year



In a model with fund managers evaluated relative to benchmark indices, stocks belonging to these benchmarks have lower expected returns. Motivated by theory, we construct a stock-level measure of benchmarking intensity (BMI) from a unique dataset of 33 U.S. equity indices. The BMI of a stock is computed as the cumulative weight of the stock in all benchmarks, weighted by assets under management following each benchmark. Exploiting a discontinuity in the BMI of stocks at the bottom of the Russell 1000 and the top of the Russell 2000 index, we show that stocks with higher BMIs indeed have lower long-run returns. A growing literature similarly uses the Russell cutoff for identification. We document emerging challenges to this approach: (1) the change in incentives to hold stocks around the cutoff of funds benchmarked to the Russell MidCap/1000/2000 and (2) the growing importance of other benchmarks, including recently introduced CRSP indexes.


Benchmark; Index; Preferred habitat; Benchmarking intensity; Index effect; Mutual funds; Russell cutoff; Optimized sampling; CRSP indexes


Working Paper