On Index Investing

We quantify the effect of index investing on equity markets. We find that index investing alters the composition of investors and changes market dynamics, but we show it does not limit trading by active investors or affect the informational effciency of prices. Stocks with more index investors have higher share turnover, return correlations, and short interest. However, there is no difference - precisely estimated - in price informativeness or trading by active investors. Consistent with the predictions in Grossman and Stiglitz (1980), we find a change in investor composition leads to a reduction in information production, but in equilibrium the fraction of informed investors adjusts such that price informativeness is unchanged.

Professor Matthew Ringgenberg​

Professor Ringgenberg is an Associate Professor of Finance at the University of Utah. Prior to joining the University of Utah, he was an Assistant Professor of Finance at Washington University in St. Louis. His research focuses on equity lending, short selling, ETFs, institutional investors, and the economics of information. His research on equity lending and short selling examines the causes and results of short sale constraints in opaque markets. In addition, he has studied the effect of index investing on the economy and he has investigated the impact of risk on arbitrageur behavior. His research has been published in the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies and has been cited in The New York Times, Bloomberg, and The New Yorker. He currently serves as an Associate Editor for Management Science.

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Our academic seminars are a forum for our academic staff to collaborate, share and discuss relevant research and trends with their peers and broader academic community.


Colin Clark (39), room 125