Benchmarking Intensity

Abstract Benchmarking incentivizes fund managers to invest a fraction of their funds’ assets in benchmark indexes, and such demand is inelastic. We construct measure inelastic stock attracts, benchmarking intensity (BMI), computed as its cumulative weight all benchmarks, weighted by following each benchmark. Exploiting the Russell 1000/2000 cutoff, we show that changes stocks’ BMIs instrument for ownership benchmarked investors. The resultant elasticities are low. document both active passive buy additions benchmarks sell deletions. Finally, an increase BMI lowers future returns. Authors have furnished Internet Appendix, which available on Oxford University Press Web site next link final published paper online.