The Passive-Ownership Share Is Double What You Think It Is

By: Alex Chinco and Marco Sammon

Format:Print
| Language:English

Abstract

We estimate that passive investors held 37.8% of the US stock market in 2020. This value comes from studying the closing volumes of index additions and deletions on reconstitution day. 37.8% is more than double the widely accepted previous estimate of 15%, which reflects index-fund holdings but ignores the holdings of direct indexers. Existing information-based asset-pricing models that are calibrated to these previous estimates for the US passive-ownership share give no hint that the numbers are 50% too small. The size of this oversight restricts how useful such models can be to policymakers.