In a newly released white paper “Passive Aggressive: The Risks of Passive Investing Dominance” Brightman and Harvey highlight that the flows into passive investments (ETF’s) embeds an increasing systemic risk for equity investors. New flows into passive products mechanically overweight overvalued stocks and underweight undervalued stocks due to market-price weighting, exacerbating momentum-driven price distortions.

Source: ssrn library