AgPa #77: Too Much Passive Investing?
The Rise of Passive Investing and Active Mutual Fund Skill (2023)
Da Huang
SSRN Working Paper, URL
This week’s AGNOSTIC Paper is a quite recent working paper that examines the impact of passive investing on the US stock market. The debate about a potential tipping point when too many assets go passive is ongoing and often quite emotional. Depending on who you ask, you hear everything from “fundamentally broken” markets to the idea that we only need very few skilled active managers who compete for all the alpha. This week’s paper provides some interesting theoretical and empirical results on that matter.
- Passive investing in the US grew tremendously
- Passive investing forces unskilled managers to quit
- Surviving active managers have more skill, but take less risk
- We are probably not yet at the point of too much passive