Forthcoming
Article
Management Science

Passive Ownership and Price Informativeness

| Pages:17

Abstract

I show that passive ownership negatively affects the degree to which stock prices anticipate earnings announcements. Estimates across several research designs imply that the rise in passive ownership over the last 30 years has caused the amount of information incorporated into prices ahead of earnings announcements to decline by roughly 16%. This effect occurs in part because passive owners collect less firm-specific information ahead of earnings announcements and limits to arbitrage prevent non-passive investors from fully offsetting this behavior.