Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/contact-us?utm_source=content&utm_medium=youtube&utm_campaign=rationalreminder_yt Can we really understand the impact of passive ownership on the US market? Marco Sammon is an Assistant Professor in the Finance Unit at Harvard Business School. During this episode, he joins us to share deep insights into the complex and counter-intuitive nature of the index fund revolution. To kick off our conversation, we discuss some of the challenges associated with getting a true understanding of the scope of passive ownership across the US. Distinguishing between different approaches to investment, we begin to unpack Marco’s paper with Alex Chinco, titled ‘The Passive-Ownership Share Is Double What You Think It Is’. We touch on the relevance of Grossman Stiglitz in 2024, pricing and reconstitution, and the ins and outs of employee stock and compensation. Using the case studies of huge global firms, we consider how to best accommodate passive demand. Lastly, as an index investor who does not own index funds, Marco shares his opinion on whether index funds have had a net positive or negative impact on financial markets. Tune in today to get a more dynamic view of the complex world of index funding and investment. Timestamps: 0:00:00 Intro 0:04:15 How much of the US stock market owned by index funds 0:09:02 Marco defines what a passive investor is 0:11:33 Marco identifies which indexes he looks at for his estimates of total passive share 0:14:36 What Marco's findings suggest about the validity of the Grossman-Stiglitz framework for how investors choose between active and passive investing 0:22:29 How the price effects of index inclusions and deletions have changed over time 0:27:38 The implications of Marco's findings for market efficiency 0:30:38 How index fund ownership has affected price informativeness 0:35:29 How index funds’ demand for securities differs from that of other investors 0:46:11 How important firm issuance has been to the growth in assets managed by index funds 0:48:00 Where the shares provided by Firms to meet passive demand come from 0:52:54 The conditions affect the responsiveness of Firms in accommodating passive demand 0:57:00 How Marco thinks the market would respond to significant net selling by index funds 1:01:27 How firms with fast track index inclusion perform relative to their non-fast-track peers 1:05:41 How fast track IPOs would affect investors in index funds 1:11:46 Marco defines success in his life Links From Today’s Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://x.com/RationalRemind Rational Reminder on TikTok — www.tiktok.com/@rationalreminder Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/ Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/ Cameron on X — https://x.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/ Marco Sammon — https://marcosammon.com/ Marco Sammon on X — https://x.com/mcsammon19 Episode 302: Michael Green — https://rationalreminder.ca/podcast/302 Papers From Today’s Episode: ‘The Passive-Ownership Share Is Double What You Think It Is’ — https://www.hbs.edu/ris/Publication%20Files/double-what-you-think-it-is%20may%2023_3c1ae213-5aec-407d-b656-13e3822f0b8b.pdf ‘On the Impossibility of Informationally Efficient Markets’ — http://www.dklevine.com/archive/refs41908.pdf ‘Capital Asset Prices With and Without Negative Holding’ — https://ideas.repec.org/p/ris/nobelp/1990_003.html Do Demand Curves for Stock Slope Down? — https://www.jstor.org/stable/2328486/