The impact of passive investing on corporate valuations

Belasco, Eric J.; Finke, Michael; Nanigian, David

doi:10.1108/03074351211266793

Cited by 7 publications

(4 citation statements)

References 29 publications

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“…Israeli et al ( 2017 ) find that increased ETF ownership has contributed to a decline in informational efficiency as stocks move more in line with their sector and the broader market and less in line with their own earnings. Similarly, both Belasco et al ( 2012 ) and Zou ( 2019 ) find that flows into passive funds cause an increase in the price-to-fundamental ratios of the underlying stocks. The results of Coles et al ( 2022 ) reveal that the prices of stocks with a greater proportion of passive investors deviate more from a random walk, a measure of weak-form market efficiency.…”

Section: Literature Reviewmentioning

confidence: 87%

“…We also focus on efficiency at the market level rather than at the individual stock level, in line with Samuelson’s ( 1998 ) dictum that market efficiency may differ at the individual stock level compared to the market level. Second, our analysis sheds light on the impact of increased passive investment, as several studies have shown that increased passive investment contributes to market inefficiency (Belasco et al 2012 ; Israeli et al 2017 ; Zou 2019 ). Third, we follow the work of Coles et al ( 2022 ) by considering two different aspects of efficiency—long-range dependence and speed of adjustment—which are often examined separately in studies (Al-Yahyaee et al 2020 ; Köchling et al 2019 ) but rarely together.…”

Section: Introductionmentioning

confidence: 85%

“…ETF investors do not consider the fundamentals of the individual companies in the index (Hanaeda and Serita 2017 ; Sushko and Turner 2018 ) and, consequently, the prices of all stocks in the basket are likely to be inflated (deflated) by excess demand (supply) irrespective of whether such price movements are justified or not (Zou 2019 ). Empirical studies confirm that an increase in passive investing distorts market prices (Belasco et al 2012 ; Zou 2019 ). The BOJ ETF purchases may thus impede the price discovery process as no fundamental analysis is conducted and the BOJ predominantly purchases when the market is in a downward swing (Harada and Okimoto 2021 ).…”

Section: Introductionmentioning

confidence: 97%

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The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?

Charteris

Steyn²

2023

J Asset Manag

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We examine the impact of the Bank of Japan’s exchange traded fund (ETF) purchases on two aspects of market efficiency—long-range dependence and price delay—of the TOPIX and Nikkei 225 indices. An increase in ETF purchases results in lower long-range dependence for both indices while the impact on the price delay varies according to index and measure. A sub-period analysis shows that the impact on market efficiency varies over time, with the dominant pattern being a delayed harmful effect, followed by a positive impact and thereafter a negative effect. The implications of these findings are discussed.

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Section: Literature Reviewmentioning

confidence: 87%

Section: Introductionmentioning

confidence: 85%

Section: Introductionmentioning

confidence: 97%

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The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?

Charteris

Steyn²

2023

J Asset Manag

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“…83 A similar concern has been raised with regard to index funds, which also trade rarely. 84 However, so long as any significant portion of a company's shares are owned and traded by individual or institutional shareholders outside the Fund, market prices are likely to remain at least somewhat informationally efficient. Moreover, it can be argued that the benefits associated with marginal increases in informational efficiency are small.…”

Section: Reduced Informational Efficiency In Stock Pricingmentioning

confidence: 99%

Corporate Governance as Privately-Ordered Public Policy: A Proposal

Stout

Ricci²

2017

SSRN Journal

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In this Article, we show how our society can use corporate governance shifts to address, if not entirely resolve, a number of currently pressing social and economic problems. These problems include: rising income inequality; demographic disparities in wealth and equity ownership; increasing poverty and income insecurity; a need for greater innovation and investment in solving problems like disease and climate change; the "externalization" of many costs of corporate activity onto third parties such as customers, employees, creditors, and the broader society; the corrosive influence of corporate money in politics; and discontent and loss of trust in the capitalist system among a large and growing segment of the population.We demonstrate how, to a very significant extent, these problems can be traced to the way shares in business corporations are currently owned, traded, and voted. We also offer a plausible plan for shifting the structure of share ownership, trading, and voting to create a more Griffiths, Struan Scott, Ursula Cheer, and David Ciepley for their comments and suggestions, along with participants at workshops on and presentations of this paper given at Cornell Law School, the Berle Conference held at Georgia State University, the University of Otago in Dunedin, the University of Canterbury in Christchurch, the University of Milan, and Victoria University of Wellington.democratic and sustainable capitalism that allows business corporations to better serve humanity. Our proposal, which envisions developing a new form of institutional shareholder, does not rely either on market forces or government interventions. Rather, it relies on voluntary cooperation and the private ordering of free individuals using modern information technologies. It operates to reduce inequalities not only in wealth and income but also in influence over business corporations. INTRODUCTIONChange begins with imagining something better. In this Article, we imagine a future where our society has ameliorated, if not resolved, a number of currently pressing social and economic problems. These problems include: rising socioeconomic inequality; racial and generational disparities in participation in equity markets; increasing poverty and income insecurity; inadequate innovation and investment in solving problems like disease and climate change; the "externalization" of many costs of corporate activity, such as carbon emissions, systemic risk, and the degradation of human health, onto third parties (customers, employees, creditors, the broader society); the corrosive influence of corporate money in politics; and the disengagement and alienation of large and growing segments of the population, leading to loss of trust in the capitalist system and the possibility of civic unrest.The insight underlying our approach is that governments are not the only institutions that can solve collective social and economic problems. Another type of powerful institution-the business corporation-can be brought to bear. Many of today's corporations ri...

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Can active investment managers beat the market? A study from the U.S. large cap equity segment

Šindelář

2022

Finance Research Letters

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The impact of passive investing on corporate valuations

Cited by 7 publications

References 29 publications

The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?

The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?

Corporate Governance as Privately-Ordered Public Policy: A Proposal

Can active investment managers beat the market? A study from the U.S. large cap equity segment

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