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Alex Young
''The effect of stock market indexing on the asymmetric timeliness of loss recognition''
( 2017, Vol. 37 No.3 )
This study examines the effect of stock market indexing on the asymmetric timeliness of loss recognition (ATLR) in accounting earnings. I use the annual reconstitution of the Russell 1000 and 2000 Indices as a source of exogenous variation in passive indexing demand. Index assignment is based on a threshold rule; hence, around the threshold, assignment is plausibly random. However, each index is separately value weighted such that firms at the bottom (top) of the Russell 1000 (2000) receive small (large) index weights, thereby causing variation in indexing demand. Using a regression discontinuity design, I show that around the threshold, firms added to the Russell 2000 from the Russell 1000 have lower ATLR than firms that stayed in the Russell 1000. The result contributes to our understanding of how investors affect properties of accounting earnings.
Keywords: stock market indexing, accounting earnings, regression discontinuity
JEL: G2 - Financial Institutions and Services: General
G3 - Corporate Finance and Governance: General
Manuscript Received : Jan 14 2016 Manuscript Accepted : Jul 29 2017

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