Work

How Index Trading Increases Market Vulnerability

Year: 2012

Type: article

Abstract: The authors found that the rise in popularity of index trading—assets invested in index funds reached more than $1 trillion at the end of 2010—contributes to higher systematic equity market risk. More equity index trading corresponds to increased cross-sectional trading commonality, which precipitates higher return correlations among stocks. Consistent with the accelerating growth of passive trading, the authors found that equity betas have not only risen but also converged in recent years.

Source: Financial Analysts Journal

DOI: 10.2469/faj.v68.n2.7

Authors: Rodney N. Sullivan, James X. Xiong

Institutions: CFA Institute, University of Virginia

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2114057259

FWCI: 10.1

Cites: 14

Cited by: 68

Related to: 10