Active vs Passive Investing

[HawgWild]

More and more money is flowing out of actively managed trading and into passive (index) mutual funds and ETFs. What drives the individual share price if everyone is in an index fund? I realize that's a long way away from happening but let's assume. Is the market more likely to become more volatile or stable?

Also, read an interesting article recently on algorithmic trading. More and more individuals are subscribing to these. The article opines why would anyone use program B when program A has been shown to give a better ROI? And, if everyone eventually migrates to Program A, what does this do to the market?

Regardless, both of these approaches take the human element out of trading.

http://www.quantsavvy.com/lp1.html?utm_source=bing&utm_medium=cpc&utm_campaign=Exact_Alpha_Texas&utm_term=algorithmic%20trading&utm_content=Algorithmic

[je100]

I guess I don't see how funds migrating to passive investing changes much, in terms of share price.  Check the link below, and look at the total market share.  Still looks like active funds dominate to the tune of about 70% of market share.  Passive funds are certainly on the rise, but I think there will always be a place for active management.  As we can see from the second chart, it will take a while for passive to even catch up to active.

http://www.bloomberg.com/news/articles/2015-12-30/these-charts-show-the-astounding-rise-in-passive-management

[hog.goblin]

There will also always be people who own stocks and not funds, companies who own each other's stocks, and companies who continue to buy back their own stock, to go along with actively managed funds that will remain.

However, a huge increase over time might cause lower volatility if there are fewer shares traded intraday.

Also, there are always a variety of passive funds that are hedged or inverse, or those that are formulated for certain weighting.