Graduation Year


Date of Submission


Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Professor Murat Binay, Ph.D.

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Now that U.S. equity investments allocated towards tracking indexes have surpassed that of active managers, discussions regarding the implications of passive investments on financial markets have intensified. Using the passive ownership discontinuity of the Russell 1000 and Russell 2000 Indices to isolate the effects of passive ownership on stock prices, this paper answers whether or not the evidence of downward sloping demand curves found in prior literature still exists in more recent samples. As the first to apply the two-stage least squares (2SLS) methodology of Appel, Gormley, and Keim (2018) to predict abnormal returns adjacent to the Russell reconstitution event, my results suggest that the percent of a firm’s stock owned by passive investors is positively correlated with abnormal returns surrounding the annual reconstitution. Additionally, I find evidence that abnormal returns persist over multiple months post-reconstitution. The lack of significant abnormal returns found three months after reconstitution supports the claim that price effects are due to forced buying related to index matching.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.