The Rise of Passive Investing and Index-linked Comovement

46 Pages Posted: 12 Aug 2013 Last revised: 1 Sep 2019

See all articles by Vincent Gregoire

Vincent Gregoire

HEC Montreal - Department of Finance

Date Written: August 3, 2019


I introduce a general equilibrium model with active investors and indexers. Indexing causes market segmentation, and the degree of segmentation is a function of the relative wealth of indexers in the economy. Shocks to this relative wealth induce correlated shocks to discount rates of index stocks. The wealthier indexers are, the greater the resulting comovement is. I confirm empirically that S&P 500 stocks comove more with other index stocks and less with non-index stocks, and that changes in passive holdings of S&P 500 stocks predict changes in comovement of index stocks.

Keywords: Indexing, Comovement, Asset Pricing, General Equilibrium

JEL Classification: G11, G12, G14

Suggested Citation

Gregoire, Vincent, The Rise of Passive Investing and Index-linked Comovement (August 3, 2019). Available at SSRN: or

Vincent Gregoire (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7

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