I suspected your hypothesis was correct, that as the percentage of passive funds grows the pricing information of each stock would decrease. Then the question

I suspected your hypothesis was correct, that as the percentage of passive funds grows the pricing information of each stock would decrease. Then the question becomes, where are we in terms of what percentage trades are done as a passive investment vs an active investment. Luckily I was able to find an excellent resource that dives into the exact questions we're discussing: https://www.bis.org/publ/qtrpdf/r_qt1803j.htm https://www.bis.org/publ/qtrpdf/r_qt1803j.htm It also makes a note that a lot of active investors allocate funds into a weighted index basket to better match index returns, so it could be that both active and passive funds are contributing to the same price insensitivity. As a final supplemental to the paper given above I also looked at the PE ratio of the S&P500 per year: https://www.multpl.com/s-p-500-pe-ratio/table/by-year https://www.multpl.com/s-p-500-pe-ratio/table/by-year One thing I would also expect is that as passive investing becomes a larger and larger part of the market we should also see the PE ratio rise. I found a site that gives the PE by year (https://www.multpl.com/s-p-500-pe-ratio/table/by-year https://www.multpl.com/s-p-500-pe-ratio/table/by-year) and calculated the following (2019 estimates removed). For all the years 1871 to present: AVG. 15.7 Median. 14.775 STD Dev. 7.25 For 1980 to present: AVG. 20.72 Median. 18.15 STD Dev. 11.18 PE ratio for 2018 was 24.97, which is very high for all of history but seems reasonable for 1980 to today.