Lecture Title: How Does Passive Investing Affect the Informational Efficiency of Prices? (How Does Passive Investing Impact the Informational Efficiency of Prices?)

Speaker: Jason Shachat, Durham University

Lecture Time: September 14, 2024, 9:00 AM

Lecture Venue: Room 319, College Building

Abstract of the Lecture:

We investigate the causal effects of passive investing on informational efficiency and market quality metrics by developing a novel laboratory experiment that introduces Index trackers with exogenous passive investment flows. We find that, while improving liquidity, Index tracking hurts informational efficiency, confirming our main hypothesis. Furthermore, we observe violations of the law of one price, leading to widespread and persistent arbitrage opportunities. Additionally, our research uncovers that Active traders, particularly those with private information about asset values and high cognitive ability, reap benefits from the introduction of Index tracking.

Speaker Information:

Jason Shachat joined Durham University in 2014 as a Professor of Economics and the Director of the Economics Laboratory. Prior to this, he held academic positions at the University of California, San Diego, the National University of Singapore, and Xiamen University. He was also a researcher at the IBM TJ Watson Research Laboratory.