ETF rise helps damp down market distortions, research finds

Study shows reduction of ‘index effect’, where prices rise before shares are included. Large swings in the share prices of companies that are expected to be dropped or added to indices have become less common with the rise of passive investment, research has found. The explosion of the exchange traded fund industry is helping to damp down the “index effect”, in which stock prices are affected by traders buying and selling them ahead of formal changes by index providers, according to Axioma, the analytics provider.