Don’t Blame Indexing for Your Problems

Acadian

Owen Lamont

Research

6 Pages

Owen Lamont challenges common criticisms of passive investing, arguing that claims linking index funds to market inefficiencies or price distortions are overstated. He contends that market efficiency depends not on the prevalence of passive investors but on the quality and quantity of active participants still engaging in price discovery.

Key Takeaways

Passive ≠ Price distortion: Passive investors don’t set prices—they simply follow market weights, leaving price formation to active traders
Efficiency depends on who’s active: Market health hinges on the presence of informed, incentivized active investors—not on how many passive investors exist
Critiques often misfire: Popular attacks on indexing reflect misunderstandings or moral objections rather than evidence that passive inflows degrade price efficiency
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