The Impact of Passive Investing on Market Fragility

10 Pages Posted: 1 Nov 2016 Last revised: 2 Nov 2016

See all articles by Paweł Maryniak

Paweł Maryniak

Wroclaw University of Technology; Uniwersytet Ekonomiczny we Wrocławiu

Date Written: May 31, 2016

Abstract

A simple theoretical model with active and passive investors is proposed. The model implies that in the bullish time the presence of passive investors enhances the growth of prices while in the bearish time enhances the declines. Therefore the growing popularity of passive investment funds, especially highly liquid ETFs, can have negative consequences and increases market fragility what is supported by the empirical evidence.

Keywords: passive investing, market fragility

JEL Classification: G10

Suggested Citation

Maryniak, Paweł, The Impact of Passive Investing on Market Fragility (May 31, 2016). Available at SSRN: https://ssrn.com/abstract=2862178 or http://dx.doi.org/10.2139/ssrn.2862178

Paweł Maryniak (Contact Author)

Wroclaw University of Technology ( email )

ul. Smoluchowskiego 25
Wroclaw, 50-372
Poland

Uniwersytet Ekonomiczny we Wrocławiu ( email )

Komandorska 118/120
Wrocław, 53-345
Poland

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