How does passive investing effect the informational efficiency of prices?

10:20-11:50, Monday, January 6, 2025

I-206, Boxue Building

Professor Jason Shachat is a distinguished scholar in Experimental Economics, currently serving in the Department of Economics at Durham University Business School. He holds a B.S. in Mathematical Economics from Tulane University (1988) and a Ph.D. in Economics from the University of Arizona (1997). Previously, he held academic appointments at the University of California – San Diego, the National University of Singapore, and Xiamen University, as well as a research scientist position at the IBM TJ Watson Research Lab.

Professor Shachat's research spans experimental economics, behavioral game theory, behavioral operations management, asset markets, and auctions. His work has been featured in leading academic journals, including Management Science, Marketing Science, Economic Journal, and Journal of Economic Theory. His research has been supported by competitive grants from prestigious organizations such as the ESRC in the UK, the NSF in the US, and the MOE in China.

We investigate the causal effects of passive investing on informational efficiency and market quality metrics by developing a novel laboratory experiment that introduces Index trackers with exogenous passive investment flows. We find that, while improving liquidity, Index tracking hurts informational efficiency, confirming our main hypothesis. Furthermore, we observe violations of the law of one price, leading to widespread and persistent arbitrage opportunities. Additionally, our research uncovers that Active traders, particularly those with private information about asset values and high cognitive ability, reap benefits from the introduction of Index tracking.

For more information of the seminar, scan the following QR code(s) to join Tencent QQ group (904 544 292) or WeChat group named "IAER Seminar (5)", please.

QQ Group

WeChat Group 

(QR code is valid until January 9, 2025)