The Global Rise of Index-Based Ownership of Firms

We develop a simple, replicable four-variable model that identifies index-based investors with 97% accuracy. We deploy the model globally and show that index ownership has grown from 3% of global market capitalization in 2004 to 16% by 2023. The rise in indexing is driven by explicit indexing, whereas closet indexing remains modest. 

We can calculate index ownership for each listed firm. Index funds own at least 10 percent of almost 2,000 firms globally. There is considerable heterogeneity: whereas American mid-caps see more index ownership than large-caps, in Asia and Europe the size-index ownership relationship is monotonically increasing and only the largest firms are affected. These difference partially reflect differences in free float and the pace of growth of indexing.