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Primary Capital Market Transactions and Index Funds

Chris Murray¹; Marco Sammon²

¹ Harvard Business School, Harvard University, ; [email protected] · ² Harvard Business School, Harvard University

Abstract We document how mechanical buying by CRSP-index-tracking funds 5 days post-IPO affects stock returns and IPO deal structure. Using a difference-in-differences design, we show that expected indexer demand causes Fast-Track IPOs to outperform their non-Fast-Track counterparts by over five percentage points, peaking at the index inclusion date and reverting significantly within 3 weeks. Anticipated CRSP index inclusion also affects IPO terms, with Fast-Track IPOs raising 6% more capital than their non-Fast-Track counterparts. Our findings support a proposed index rule change to eliminate a $5.8 billion “shadow tax” paid to intermediaries by index fund investors and firms raising capital through IPOs. (JEL G12, G14)

DOI

10.1093/rapstu/raaf013

Volume

16 (2)

Pages

163-202

Language

en

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