1) is only true if the average active investor that switches to index funds is better informed than the average active investor. If a less informed investor swi

1) is only true if the average active investor that switches to index funds is better informed than the average active investor. If a less informed investor switches from active to passive, then price discovery is improved. 2) is only an issue if the underlying assets don't have any value or you need to sell at the worst possible moment. ETFs generally improve the liquidity of in a liquidity crisis.