Critical Finance Review > Vol 13 > Issue 1-2

Selection Bias or Treatment Effect? A Re-Examination of Russell 1000/2000 Index Reconstitution

Wei Wei, University of Oklahoma, USA, , Alex Young, Hofstra University, USA,
Suggested Citation
Wei Wei and Alex Young (2024), "Selection Bias or Treatment Effect? A Re-Examination of Russell 1000/2000 Index Reconstitution", Critical Finance Review: Vol. 13: No. 1-2, pp 83-115.

Publication Date: 14 Feb 2024
© 2024 Wei Wei and Alex Young
Institutional ownershipRegression discontinuityRussell indexesSelection bias


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In this article:
1. Introduction 
2. Empirical Framework 
3. Re-Examination of the Most Common Approach 
4. Re-Examination of Fuzzy RD 
5. Addressing Concerns About Fuzzy RD 
6. Reconciliation 
7. Concluding Remarks 


A recent literature uses the annual reconstitution of the Russell 1000 and 2000 Indexes as a source of seemingly exogenous variation in institutional ownership to study the effect of institutional ownership on firm outcomes. We show that lagged institutional ownership measured prior to reconstitution exhibits very similar pre-existing differences at the 1000/2000 cutoff, and thus the results from the most common implementation of this setting (e.g., as in Bird and Karolyi, 2019) reflect selection bias instead of a treatment effect. Additional tests confirm that it is the use of rankings based on Russell’s June index weights that leads to biased results. With an unbiased approach, there is no significant discontinuity in institutional ownership at the 1000/2000 cutoff despite the large difference in index weights.