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The implications of passive investing for securities markets

Author

Listed:
  • Vladyslav Sushko
  • Grant Turner

Abstract

The popularity of passive investing through index mutual funds and exchange-traded funds (ETFs) has grown substantially over recent years, displacing higher-cost active investment styles. A shift towards passive investing could affect securities markets in two key ways. First, it could result in higher correlation of returns and less security-specific price information. Second, it could affect aggregate investment fund flows and market price dynamics. In this context, active mutual funds exhibited persistent outflows in recent stress periods, whereas passive mutual fund flows were fairly stable. ETF flows were relatively volatile, although their link with underlying prices is less straightforward than for other fund types.

Suggested Citation

  • Vladyslav Sushko & Grant Turner, 2018. "The implications of passive investing for securities markets," BIS Quarterly Review, Bank for International Settlements, March.
  • Handle: RePEc:bis:bisqtr:1803j
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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