Passive Ownership and Price Informativeness

52 Pages Posted: 27 Nov 2018 Last revised: 15 Nov 2021

Date Written: November 12, 2021


How does passive ownership affect the incorporation of information into stock prices? Motivated by two canonical models, I propose three new empirical measures of price informativeness. I find average price informativeness declined over the past 30 years and passive ownership is negatively correlated with price informativeness. To establish causality, I show that price informativeness decreases after quasi-exogenous increases in passive ownership arising from index additions and rebalancing. Finally, I provide evidence for a mechanism: investors expend less effort gathering information about stocks with a larger fraction of passive owners.

Keywords: Passive Ownership, ETFs, Market Efficiency

JEL Classification: G12, G14

Suggested Citation

Sammon, Marco, Passive Ownership and Price Informativeness (November 12, 2021). Available at SSRN: or

Marco Sammon (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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