"The rise in systematic risk emanates, in part, from an increase in trading commonality across time…"

Sunday, March 18th, 2012 at 12:51 pm

“The rise in systematic risk emanates, in part, from an increase in trading commonality across time and across stocks associated with growth in passive investing. Though perhaps not the only explanation for rising systematic risk, our results provide strong evidence that the observed increase in trading commonality since 1997 has indeed led to lower cross-sectional dispersion of volume changes and, therefore, greater systematic risk since then.”

How Index Trading Increases Market Vulnerability