Has the rise of passive investing brought down the stock market? Is the extent of passive ownership too high? No. There isn’t any good reason to imagine that higher indexation affects market efficiency. What matters are the non-passive investors: are there enough of them, have they got the suitable incentives, can they express their opinion on trading? What doesn’t matter are the passive investors: they’re just like the audience in a play; You just watch the goings-on on stage. There isn’t any level of passive ownership apart from 100%, which obviously causes the market to stop functioning.
