On December 9th at 12AM in room B Prof. Shmuel Baruch from the University of Utah will give a seminar on "The Distortion in Prices due to Passive Investing"

Abstract:

We develop a conditional capital asset pricing model (CAPM) that maintains the rationale for market indexing: In equilibrium, it is optimal for nonindex investors to hold the market portfolio. The model demonstrates that passive investment (indexing) is not benign. As more nonindexers become indexers, the statistical fit (measured by $R^2$) of the CAPM regression decreases; and for any portfolio other than the market portfolio, the Sharpe ratio decreases and the conditional variance of payoff increases.