Passive Ownership & Systemic Risk
Two measurable consequences as passive fund concentration rises
Avg. Pairwise Stock Correlation
1962–1997 (pre-passive era)
1998–2020 (passive expansion)
+135% increase in co-movement
Tail Jump Risk per 1σ Passive Ownership ↑
Downside jump risk (left tail)
Upside jump risk (right tail)
Context: Historical avg. tail risk for large-cap stocks is 23–26% baseline. A single standard deviation in passive ownership lifts this by ~19 pp.
Sources: Glosten et al. (2021); Ben-David et al. (2018); academic analysis of passive ownership as instrument using index reconstitution events.