CRSP equity indexes

On October 12, 2012 the Center for Research in Security Prices (CRSP) announced the launch of a series of investable indexes The indexes include U.S. capitalization indexes, U.S value and growth style indexes, and U.S. industry sector indexes.

Markets and securities
The CRSP indexes include stock market securities trading on the New York Stock Exchange, New York Stock Exchange Market (formerly AMEX), ARCA, and NASDAQ. Securities included in the index are common stocks, REITS, shares of beneficial interest (unless a fund) and Berkshire Hathaway A&B. The indexes are weighted according to free-float market capitalization and are recalculated quarterly. CRSP has randomized procedures as a means of reducing the risk of arbitrageurs successfully front-running a scheduled index reconstitution.

Investability screens
For a stock to be included in the CRSP indexes, it must be headquartered in the US or its territorial possessions, and also meet the following requirements:


 * Minimum total market capitalization: The company must have more than $10 million total market capitalization.
 * Float shares requirement: The number of a company’s float shares must be greater than 10% of the total shares outstanding.
 * Minimum trading volume: The average of the adjusted trading volume over the last 125 days divided by float shares on the ranking date must be at least 0.0008.
 * Consecutive trading days requirement: A security must not have a sequence of 10 consecutive non-trading days during the previous quarter. Halted or suspended securities do not count toward the consecutive trading date requirement. Inclusion of Initial Public Offerings (IPOs) require regular trading for at least 20 trading days,or at least 5 regular trading days for stocks within the breakpoint range of the CRSP U.S. Large Cap Index ( the top 85% of market capitalization)

Capitalization indexes
CRSP provides a total market index, along with a series of subcategories of market capitalization indexes comprising mega cap stocks, mid cap stocks, large cap stocks (mega caps plus mid caps), small cap stocks, and micro cap stocks. The table below lists the set of CRSP capitalization indexes, along with the NASDAQ tickers for total return and price return indexes.



While many index providers sort segments of the U.S. stock market according to number of stocks, CRSP segments the market according to percentages. There is no limit to the number of companies that may comprise an index. Companies are sorted from largest to smallest by market capitalization. The largest index has no upper limit and the smallest index has no lower limit. On each reconstitution date, breakpoint targets are set at 70%, 85% and 98% of the cumulative market cap of the eligible universe.

These market capitalization breakpoints are not exact boundaries, as each market segment has a transitional band of values around the breakpoint, designed to restrict the movement of companies between indexes until a stock has significantly transitioned from one index to another. This approach attempts to balance the desire to maximize style purity while minimizing index turnover.

The table below shows the percentage range of each market segment. Thus Mega cap stocks contain the top 70% of the U.S. market capitalization. Mid cap stocks comprise 15% of the market, residing  in the range between 70% and 85% of market capitalization. Small cap stocks comprise 13% of the market, ranging in the 85% to 98% zone. Micro cap stocks make up the remaining 2% of market capitalization. The table below provides both the market cap range as well as the transitional band range for each CRSP market capitalization index. The figure to the right renders a graphical presentation of CRSP breakpoints and transition bands.

Value and growth style indexes
CRSP calculates value and growth indexes for the mega cap, mid cap, large cap, and small cap indexes, as displayed in the following table.

CRSP uses six growth factors and five value factors for ranking styles. These factors are outlined in the table below. CRSP calculates value and growth ranks for each stock, blended into an Average Rank (AR). Securities are placed on a continuum from value to growth, which are than split, based on AR scores, into Value and Growth indexes.

The AR score style continuum breakpoint is not well defined, so CRSP defines the middle third of the AR range as a transition zone. The transition zone helps reduce turnover of securities in the indexes.

Industry sector indexes
CRSP provides US equity sector indexes, organized according to Industry Classification Benchmarks (ICB). The only capitalization constraints imposed on sector index security weightings are the regulatory limits placed on investment companies regarding concentration limits (for example, no security can comprise more than 5% of a portfolio.)

Packeting
In a further attempt to reduce index turnover, CRSP introduced a procedure termed "packeting", which is applied to stock migration across both capitalization and style dimensions. Once a stock migrates out of transition band, a packet of 50% of the security is shifted. If the security stays beyond the outer threshold in the following period, the remaining 50% is moved.

Index returns
CRSP equity index annual returns for capitalization and style indexes are available beginning in 2002.

Forum discussions

 * CRSP and MSCI: comparing US indexes, Thu Oct 04, 2012
 * Shifts in VG Tracking Indexes Announced, factor regressions, Oct 13, 2012