The Passive-Ownership Share Is Double What You Think It Is

48 Pages Posted: 10 Sep 2022 Last revised: 27 Sep 2022

See all articles by Alex Chinco

Alex Chinco

City University of NY, Baruch College, Zicklin School of Business

Marco Sammon

Harvard Business School

Date Written: September 26, 2022

Abstract

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.

Keywords: Passive ownership, Index funds, Reconstitution day, Pre-positioned trades, Information-based asset-pricing models

JEL Classification: G11, G14, G23

Suggested Citation

Chinco, Alexander and Sammon, Marco, The Passive-Ownership Share Is Double What You Think It Is (September 26, 2022). Available at SSRN: https://ssrn.com/abstract=4188052 or http://dx.doi.org/10.2139/ssrn.4188052

Alexander Chinco (Contact Author)

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

HOME PAGE: http://www.alexchinco.com

Marco Sammon

Harvard Business School ( email )

Boston, MA 02163
United States

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