The Passive-Ownership Share Is Double What You Think It Is
Alex Chinco Marco Sammon
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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Passive ownership Index funds Reconstitution day Pre-positioned trades Information-based asset-pricing models