The stock market
is going passive.

During the rise of passive investing, heavily indexed stocks outperformed lightly indexed stocks, yet are priced to earn less. As indexed capital moved in, prices rose faster than earnings forecasts, rewarding existing shareholders and lowering expected returns for subsequent buyers. The gains remained five years later. Passive investing repeatedly grew faster than forecast, and heavily indexed stocks earned more when it did. Four empirical designs put the price of a percentage point of indexed ownership at about 1.4 percent of stock value. Lower expected returns are the price of passive ownership.

A fund can look greener without its manager shifting the portfolio toward greener firms. Since 2019, U.S. fund carbon intensity has fallen by about a third, yet managers' trading explains less than a tenth. Carbon intensity divides emissions by sales; rising sales drove most of the decline and output prices half. Forty-four percent of funds credited with a decline did not trade it down. Those prices carry most of a leading estimate of brown firms' response to cheaper capital, and sales, not carbon, carry the carbon premium. Carbon scores measure portfolio exposure; attribution reveals who deserves credit for changing it.

Retail investors reveal in public which stocks they are crowding into, and those stocks become more volatile the following week. Using 86.7 million Reddit comments, I show that the full implied volatility surface absorbs only about half of this public signal. Option prices do react, but not for long. Short-maturity implied volatility is higher when attention is high and falls over the next week while stock volatility remains elevated. Delta-hedged option buyers earn lower subsequent gains. The unabsorbed half improves volatility forecasts out of sample. Controlling for implied volatility does not control for what retail attention predicts.

Index funds must buy part of every new issue by firms they already hold, in amounts and on dates index rules set before the deal is priced. These purchases grew from about 2 percent of dollars raised in seasoned offerings in 2002 to nearly 16 percent in 2023. Firms selling into more of this scheduled demand sell at higher prices once the deal is public, and the issue-size discount nearly disappears among the most passively owned issuers, far beyond what removing the purchased shares from the market would give. Sales of existing shares show no such pattern. At Russell share updates turnover rises on the close, and in lower-priced issuers the price rises into it. A growing share of new equity sells into demand known in advance.