Faculty Publications


The impact of passive investing on corporate valuations

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To examine the impact of passive investing on corporate valuations, the authors run panel regressions of price‐to‐earnings ratio on aggregate money flow into S&P 500 index funds and control for various accounting variables that impact price‐to‐earnings ratio. These regressions involve two samples of stocks. The first sample consists of S&P 500 constituents. The second consists of large‐cap stocks that are not constituents of the S&P 500. The authors also run a set of separate regressions with price‐to‐book ratio rather than price‐to‐earnings ratio as the dependent variable.