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The Passive-Ownership Share Is Double What You Think It Is

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Author
Alex Chinco Marco Sammon
Category
Financial
Date Posted
2022/09/10
Date Retrieved
2022/09/26
Date Revised
Date Written
2022/09/26
Description
Passive investors held 37.8% of the US stock market in 2020. This estimate comes from studying the closing volumes of index additions and deletions on reconstitution days. It reflects the holdings of both index funds and direct indexers. However the previous estimate 15% assumed all passive investing was done via index funds. Existing models for rising passive ownership are calibrated to this previous estimate and give no hint it is 50% too small which limits how useful these models are to policymakers. Direct indexing also helps empirical researchers make sense of recent market trends like the growth in buybacks.
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JEL Classifications
G11 G14 G23
Keywords
Passive ownership Index funds Reconstitution day Pre-positioned trades Information-based asset-pricing models
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Pages
48
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230245
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