CRSP

A Banner Month for CRSP

CRSP

As we have discussed in many articles such as this one, the Center for Research in Security Prices (CRSP) is the gold standard of historical financial data and is the foundation upon which modern finance is built. This past October saw several well-deserved milestones for CRSP. First, the chairman of CRSP, Eugene Fama was awarded the Nobel Prize in Economics alongside fellow CRSP economist Lars Peter Hansen. In 1960, the year that CRSP began operations with a $300,000 grant from Merrill Lynch, Professor Fama was beginning his studies as an MBA Student at the University of Chicago Booth School of Business. He can now claim over half a century of experience with CRSP! Speaking of which, one of the prize books in the IFA Library is A Half Century of Returns on Stocks & Bonds by the two founders of CRSP, Lawrence Fisher and James H. Lorie. This big yellow book was the forerunner of the highly authoritative Stocks, Bonds, Bills, and Inflation as well as the DFA Matrix Book.

The second milestone for CRSP is that it can now claim to run the benchmark for the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund which ended October with net assets of $251 billion, compared to $247.9 billion for the PIMCO Total Return Fund. The Vanguard fund is now benchmarked to CRSP’s US Total Market Index. Last year, Vanguard began benchmarking most of its domestic equity index funds to indexes designed and maintained by CRSP. One advantage for Vanguard is that CRSP does not publicly announce which companies are being added to or deleted from its indexes, so other market participants cannot easily exploit Vanguard’s trading.

Dimensional Fund Advisors (DFA) has relied for many years on CRSP for the development of its funds, under the supervision of Eugene Fama from day one. Although they may not use CRSP indexes to the same exactness as Vanguard now does, they follow the same structural principles of sorting the market along dimensions of size and value. DFA’s value added derives from its patient and opportunistic approach to trading combined with the intelligent application of academic research in areas such as momentum and profitability.

According to this article from Chicago Booth, CRSP data is now used by nearly 450 universities in 35 countries. We look forward to the day when CRSP data is used by the same number of index funds around the world.