10 YEARS OF CRSP MARKET INDEXES
ABOUT CRSP MARKET INDEXES
CRSP Market Indexes blend the advancements
in academic research with industry practice under
the premise that an index must reflect the way that
money managers actually invest.
CRSP has been producing indexes since 1966, helping
academics and practitioners understand and research the
trends in the financial markets. Drawing on its expertise,
CRSP designed CRSP Market Indexes to be efficient,
transparent and representative benchmarks for
corresponding market segments.
Launched in 2011, CRSP Market indexes are modern
benchmarks that are suitable for tracking different
segments of the US market, including Large and
Small capitalization stocks, Value and Growth
styles, as well as Industry Sectors.
CRSP Market have over $1.5 trillion dollars of tracking assets.
CRSP draws on its academic and industry expertise to ensure that its investable indexes incorporate the most modern and forward-thinking approaches. Among the many results of this process are index innovations intended to ensure the most comprehensive and inclusive methodology for index composition, including the employment of our Cumulative Market Capitalization metrics and Multi-Factor Style models.
CUMULATIVE MARKET CAPITALIZATION FOR CAP BREAKPOINTS
CRSP utilizes its cumulative market capitalization method to construct and define breakpoints for cap-based indexes. Cumulative capitalization method, unlike a more basic fixed-count approach (100 stocks, 500s stocks, etc.), delivers consistent exposure to “size” without any sensitivity to a specific time or market. Exhibit [#1] shows how the percent of market capitalization for fixed-count portfolios fluctuate and, as a result, the amount of market risk in a portfolio with fixed number of stocks also varies over time. Furthermore, as seen from the chart, a fixed-count portfolio accounts for a larger fraction of total market risk today than it did in the past. CRSP believes that fixed-count benchmarks are not ideal for performance evaluation or for the construction of “policy portfolios” in asset allocation.
MULTI-FACTOR MODEL FOR VALUE AND GROWTH
CRSP value and growth dimensions are defined using multiple
factors for each security. The use of these multiple factors follows
current academic thought and fund manager behavior, in that they
look at multiple data points simultaneously when generating their
investment strategies. This ultimately allows for better estimation
of the true, unobservable “value” or “growth” of a firm.
The weights selected for each individual factor are the result
of a process designed to select investments that behave like
those “value” and “growth” managers would choose, while
limiting portfolio turnover and the obvious transaction costs
incurred. In contrast to many existing index providers,
CRSP found that not all factors are created equal. On
the value side, earnings metrics have a plurality of
the weight. For growth, historical sales trends and
analyst estimates proved most important.
TRUSTED SOLUTIONS TO MAKE SOUND INVESTMENT DECISIONS
CRSP Investable Indexes are designed to best represent designated segments of the market. Similar index products such as capitalization-based indexes and value and growth style indexes are usually separated by ‘breakpoints’. However, in reality, the styles and sizes of securities at or near breakpoints are often arbitrary, or not clear. Consequently, strictly enforcing investment rules based on breakpoints may both coerce securities into categories when they do not show strong characteristics, as well as cause additional transaction costs introduced by the traffic across the breakpoints. Further, indexes constructed with rigid breakpoints are less representative of a market and can be costly to track. The CRSP Investible Indexes mitigate these problems through its innovative banding and migration features, resulting in indexes that are representative of the market segment, reflecting the way actual money managers invest.
BANDING AND PACKETING
CRSP uses banding and packeting for its cap and style indexes. Based on test results, CRSP assigns different band sizes around breakpoints for its mega-, mid-, small- and micro-cap indexes.
Similarly, CRSP also employs bands and packeting for style transitions, requiring a security to have a clear signal before migrating it to a different cap category.
Banding and packeting rules ensure that indexes retain proportionate representation of securities market segments while minimizing the costly turnover by up to 50% as compared to the turnover of products based on comparable indexes.
To better align index methodology with the investment community’s best practices, such as gradual sale or purchase of securities, and maximize cost efficiency, CRSP utilizes a five-day transitional reconstitution that moves 20% of the change in holdings each day from the current index to the new target index’s holdings as computed on ranking day.
60 YEARS OF CRSP
60 years after being launched by University of Chicago Professors
James Lorie and Lawrence Fisher, CRSP continues to fill a highly
important niche within the market data industry by providing
research-quality market and index data. Since launching its initial
indexes in 1966, CRSP’s experienced and dedicated team has continued
to develop innovative products. CRSP files provide a strong foundation
for economic forecasting, stock market research, and financial analyses
to academic institutions, asset managers, consultants and government agencies.
CRSP is an affiliate of the University of Chicago Booth School of Business (Chicago Booth), which is renowned for impactful financial and economic research and for producing ideas and leaders that shape the world of business. Founded in 1898, Chicago Booth is the second-oldest business school in the world and is proud to be the first business school to:
- Have nine Nobel Prize winners on its faculty
- Initiate a PhD program in business (1920)
- Offer an executive MBA degree program (1943)
- Have permanent campuses on three continents: Asia, Europe and North America.
CRSP Investable Indexes have over $1.5 trillion dollars of tracking assets.
AN EXTENSION OF OUR CORE PRODUCTS: BRIDGING THEORY AND PRACTICE
For 60 years, CRSP has maintained the level of quality and industry standards set in the formation of CRSP. Research-quality historical U.S. market databases for common stocks, mutual funds, treasuries, REITS and indexes serve nearly 600 academic, practitioners, and government sectors in 35 countries.
Today, with a staff of nearly 90 professionals, CRSP continues its commitment to providing research data for the most rigorous tests in academic research, and in backtesting applications by practitioners. In October 2012, CRSP extended beyond its core products with the introduction of the CRSP Market Indexes. This series of transparent and investable indexes provide the foundation for new areas of research and to serve as benchmarks for investment vehicles such as ETFs.
These indexes blend advancements in academic research with industry practice in a fundamentally sound manner under the premise that an index must reflect the way that money managers actually invest. CRSP’s series of transparent and investable indexes provide the necessary foundation for the development of related research products, central to CRSP’s scholarly heritage.
CRSP’S STRONG ACADEMIC UNDERPINNINGS
CRSP’s strong academic underpinnings with Chicago Booth allow us to leverage the expertise of our faculty advisory board in the development of both the real-time indexes and the related research products.
Since the publishing of the inaugural paper in 1964, CRSP data has had profound impact on academic, commercial, and governmental research. Stand-alone, or used with other data sources, CRSP data has been cited in thousands of research papers over the past 60 years by scholars in academic, commercial, and government sectors.
PREEMINENT HISTORIC DATA
CRSP data is recognized as the preeminent historic database for research upon which thousands of papers and dissertations have been written, methodologies created, and backtests performed using CRSP’s cornerstone US Stock and Index Databases. NASDAQ, Arca, BATS, and ICE exchanges were added to the original data set based on the New York and American Stock Exchange universes, ensuring completeness and continued relevance of CRSP data. The original monthly-frequency database was refined to include daily data, offering more granularity and accuracy. Additional databases have been created, including US Treasuries, Mutual Funds, and REITS.
95 YEARS OF DATA
The CRSP stock database exceeds 95 years of data across 16 business cycles. No other data provider can match the breadth, depth, and accuracy of CRSP historical data.
WHO ARE CRSP HISTORICAL MARKET DATA SUBSCRIBERS?
Our Academic subscribers include the leading institutions around the world. In the US, CRSP data is relied on for research and teaching at the top 280+ schools conferring PhDs, MBAs, and undergraduate degrees in math, statistics, accounting, finance, economics, and other related disciplines. Outside the US, CRSP serves more than 210 leading institutions based in 35 countries.
Our Commercial subscribers include the leading asset management firms, including hedge funds, mutual funds, insurance, pension funds and endowments. Our historical research data is relied on for rigorous backtesting and serve as investment performance benchmarks.
In the government segment, CRSP historical data is relied on by researchers in regulatory agencies, Federal Reserve Banks, and other governmental entities.
December 31, 1925
In 1977, the original January 30, 1926, data file was updated in order to make this the initial date
January 30, 1926
The starting point for the original CRSP project data collection. By starting with 1926, the initial study included 35 years of data, including two complete years preceding the 1928-1929 bull market.
February 16, 1926
The Consolidated Stock Exchange ceases trading. NYSE increases in volume and reputation compared to smaller reginal exchanges. This event dovetailed with Fisher and Lorie’s decision to start with 1926 for NYSE listed stocks.
Primary source material prior to this year is often incomplete or inaccurate. One of the reasons the initial database development project was extended from 6 months to a 3-1/2 year project was due to the difficulty of sourcing and checking early market data. The tedious nature of data validation is discussed in early speeches by Fisher and Lorie.
U.S. Stocks are down -84%
The U.S. Stocks are +783% total return
According to the first share owner census undertaken by the New York Stock Exchange (NYSE), only 6.5 million Americans owned common stock (about 4.2% of the U.S. population). Today an estimated 45% of Americans have money in the stock market.
The last year in which daily trading volumes on the NYSE were below one million shares.
The Dow Jones Industrial Average (DJIA) surpassed its 1929 peak, a full 25 years after the crash.
Louis Engel (Vice President at Merrill Lynch, Pierce, Fenner & Smith) wondered, relative to other asset classes, how have the returns of stocks performed over the long term? He contacted the Chicago Graduate School of Business Associate Dean James Lorie who proposed Merrill fund a study to compile the historical data needed to calculate the returns.
In March, CRSP is established. Lorie and Professor Lawrence Fisher collaborate on collecting and researching NYSE common stock returns between 1926 and 1960.
Professors Lorie and Fisher announced the results of their 3 1/2 year data development and analysis project at the Press Club in New York. The results of the study made headlines across the country.
Fisher and Lorie findings are published in the Journal of Business in January.
Development of the master data files completed.
60 universities are already using CRSP data files for research and educational programs.
CRSP launches its first indexes.
Wells Fargo Bank establishes the first index fund: a $6 million fund for Samsonite Corporation's pension program. The fund's director, Mac McQuown, credited Booth professors Myron Scholes and Fisher Black, whom he met through Booth professor and CRSP Board Director Gene Fama.
The Central Certificate Service, which was introduced in 1968 to handle surging trading volumes, was replaced by the Depository Trust Company in 1973. This meant that, rather than physical stock certificates, investors were now more likely to have their stocks held in electronic form at a central depository.
Trading hours on the NYSE were extended by 30 minutes to accommodate the growth of the market.
Individual retirement accounts (IRA) are created by the Employee Retirement Income Security Act (ERISA) of 1974, and the first index fund is introduced.
For the first time ever, more than 100 million shares traded on the New York Stock Exchange.
NASDAQ market data dating from 1972 is added.
October 19, 1987
Black Monday: Stock markets around the world crashed, and the Dow Jones Industrial Average had its largest one-day percentage decline at 24.39%. The total U.S. stock markets fell 22.68%.
NYSE/AMEX high, low and volume extension completed.
Cap-based indexes, NASDAQ SIC-Based Total Returns Indexes and Proxy added.
Daily US Treasuries released.
The CRSP Survivor-Bias-Free US Mutual Fund Database evolved from Mark M. Carhart’s dissertation.
CRSPAccess Software launched.
TIPS were first auctioned in January 1997 after the market expressed a strong interest in the inflation-indexed asset class.
NASDAQ foreign extension added.
CRSP joined efforts with S&P to create the CRSP/Compustat Database (CCM).
CRSP enters into agreement with Wharton Research Data Services (WRDS) to allow WRDS to host CRSP databases for academic subscribers.
CRSP evolved from annual to monthly data update/release cycle.
This year marks the bottom of the dotcom crash. The Nasdaq Composite lost 78% of its value as it fell from its peak 5046.86 to crash at 1114.11.
From 2003-2009 CRSP provides total returns daily to NASDAQ for NASDAQ Composite, NASDAQ 100, NASDAQ Biotechnology and ABA NASDAQ Community Bank Indexes.
Open and NYSE/AMEX Bid/Ask extension added.
CRSP works with Ziman Center at the Anderson School of Business at UCLA to create the CRSP/Ziman Real Estate Data Series.
CRSP daily stock database extended from July 2, 1962 back to December 31, 1925, for NYSE common issues.
CRSPSift User Interface/Data Access Utility launches.
ARCA Exchange Stock Database extension added.
The beginning of the subprime meltdown.
Development of new CRSP Market Indexes begins.
Alumnus David Booth gives $300 million to the University of Chicago business school. The school is renamed to Chicago Booth in his honor.
CRSP stock release now spans 85 years.
The Wall Street Journal says, “In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s…Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade. ”
CRSP TURNS 50!
CRSP launches new CRSP Market Indexes with seven real-time capitalization-based investable indexes.
CRSP Market Indexes expand to include value and growth style indexes.
CRSP celebrates 90 years of data.
CRSP announces introduction of Transitional Reconstitution.
CRSP adds BATS and IEX Exchange data
CRSP launches CRSP10, a 10-year monthly history of the research-quality stock database
CRSP Celebrates 95 Years of Data, 60 Years of CRSP, and 10 Years of CRSP Market Indexes
WHY WAS 1926 SIGNIFICANT?
In early 1960, Chicago Booth Professors Lawrence Fisher and James Lorie were debating a logical starting point for the data collection that would be the inception of CRSP. They ultimately decided that the file needed to start at least one full business cycle before the 1929 stock market crash. By starting with January 30, 1926, the initial study included 35 years of data, including two complete years preceding the 1928-1929 bull market. (In 1977, the file was updated in order to make the initial date of data December 31, 1925.)
Another major consideration for the initial date of data was the availability of complete and reliable data sources. Primary source material prior to 1930 is often incomplete or inaccurate. Moreover, as of February 16, 1926, the Consolidated Stock Exchange ceased trading. Consolidated had been the chief rival to the NYSE for many years prior to its demise. This increased the distance, in terms of volume and reputation, between NYSE and the many smaller regional exchanges.
In their book A Half Century of Returns on Stocks and Bonds, Fisher and Lorie offer this perspective on the value of historical data:
“The reasons for covering as long a time period as we can with consistent methods should be obvious at this time. Historical data show the kinds of human experience that have taken place, and, perhaps, their relative frequencies. But each period also has its own special features. To ignore all data from the 1920s, 1930s, and early 1940s in estimating the riskiness of investments in common stock — as many did in the late 1960s — now appears to be foolhardy. Older data could be ignored safely only if risk were much better understood.”