stock is listed on. Small stocks may be better served by having a special-
ist provide liquidity, but the spread between the price a stock sells for
and the price it can be bought for may be lower on active stocks under
the Nasdaq market maker system. There is now rapid consolidation
among exchanges, and cross-listing of issues is now becoming common.
The importance of what exchange a stock is listed on will decline even
more in the future.^6Other Stock Indexes: The Center for Research in Security Prices (CRSP)
In 1959, Professor James Lorie of the Graduate School of Business of the
University of Chicago received a request from the brokerage house Merrill
Lynch, Pierce, Fenner & Smith. The firm wanted to investigate how well
people had done investing in common stock and could not find reliable
historical data. Professor Lorie teamed up with colleague Lawrence Fisher
to build a database of securities data that could answer that question.
With computer technology in its infancy, Lorie and Fisher created
the Center for Research in Security Prices (CRSP, pronounced “crisp”)
that compiled the first machine-readable file of stock prices dating from
1926 that was to become the accepted database for academic and profes-
sional research. The database currently contains all stocks traded on the
New York and American Stock Exchanges and the Nasdaq.
At the end of 2006, the market value of the 6,744 stocks was $18
trillion.
The largest comprehensive index of U.S. firms, Figure 3-2 shows
the size breakdown and total market capitalization of the stocks in this
index. The top 500 firms, which closely mirror the S&P 500 Index, con-
stitute 74.6 percent of the market value of all stocks. The top 1,000 firms
in market value, which are virtually identical to the Russell 1000 and
published by the Russell Investment Group, comprise 85.4 percent of the
total value of equities. The Russell 2000 contains the next 2,000 largest
companies, which adds an additional 11.7 percent to the market value of
the total index. The Russell 3000, the sum of the Russell 1000 and 2000
indexes, comprises 97.1 percent of all U.S. stocks. The remaining 3,744
stocks constitute 2.9 percent of the value.
Closely related to the CRSP Total Return indexes is the Dow Jones
Wilshire 5000 Index, which was founded in 1974 and contains approxi-
mately 5,000 firms.CHAPTER 3 Stock Indexes 45
(^6) Institutions have their own ways of dealing with big blocks of stock no matter what exchange the
stock is listed on.