Passive Ownership and Price Informativeness

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 approximately one-fourth of its whole-sample mean and one-sixth of its whole-sample standard deviation. This paper was accepted by Will Cong, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00836 .