cap log close log using rd, replace set more off /****************************************************************************** Regression Discontinuity and the Price Effects of Stock Market Indexing Yen-Cheng Chang, Harrison Hong, and Inessa Liskovich This program runs the basic RD regression. Because it is a fuzzy RD we use 2SLS. We run the regression separately for stocks starting in the Russell 1000 and Russell 2000. We show the results for four different bandwidth options and two different specifications (linear or quadratic trends on either side of the discontinuity). Our outcome variable is returns (ret) but can easily be changed to any other outcome of interest. ******************************************************************************/ /* Use the sample of firms around the upper cut-off every year */ use rdsampleall, clear /* Create different bandwidths to test */ gen byte b300=rank>=-300 & rank<=300 gen byte b200=rank>=-200 & rank<=200 gen byte b100=rank>=-100 & rank<=100 gen byte b50=rank>=-50 & rank<=50 global bw 300 200 100 50 /* Run separate RD for firms starting in the Russell 1000 and Russell 2000 */ forval r=1/2{ /* Run the specification for every bandwidth */ foreach b of global bw { /* Check returns results for May - September */ forval m=3/9 { /* Fuzzy RD with linear trends in rank on either side of the cutoff */ ivregress 2sls ret (r2j rankd = inc rankinc) rank if month==`m' & b`b'==1 & rm==`r', r /* Fuzzy RD with quadratic trends in rank on either side of the cutoff */ ivregress 2sls ret (r2j rankd rank2d = inc rankinc rank2inc) rank rank2 if month==`m' & b`b'==1 & rm==`r', r } } } /****************************************************************************** Notes on variables: r2j is an indicator variable for membership in the Russell 2000 in June. In the equations in the paper it is the variable "D" inc is a indicator variable for being below the threshold for inclusion in the Russell 2000 in June. It is our instrument for actual inclusion, r2j. In the equations in the paper it is the variable "tau" rankd is rank interacted with "D" rankinc is rank interacted with "tau" rank2 is rank^2 rank2d is rank^2 interacted with "D" rank2inc is rank^2 interacted with "tau" ******************************************************************************/ log close