Indexed investments have grown substantially during the past several decades, leading to dramatic changes in the asset management industry and the way people invest, as well as to significant cost savings.
This paper reviews the rationale for indexing’s efficacy, quantifies the benefits of indexing to investors, clarifies the definition of indexing, and explores the validity of claims that indexing has an adverse impact on the capital markets.
It shows that index fund assets account for only 10% of the global total investable market and 5% of trading volume on US exchanges.
Additionally, it finds no evidence to indicate that indexing contributes to fewer market opportunities for active managers, causes greater market volatility, or leads to a declining number of public companies.
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