The Economic Impact of Index Investing

Jonathan Brogaard, Matthew C. Ringgenberg, David Sovich

Research output: Contribution to journalArticlepeer-review

23 Scopus citations


We study the impact of index investing on firm performance by examining the link between commodity indices and firms that use index commodities. Around 2004, commodity index investing dramatically increased. This event is referred to as the financialization of commodity markets. Following financialization, firms that use index commodities make worse production decisions, earn 40% lower profits, and have 6% higher costs. Consistent with a feedback channel in which market participants learn from prices, our results suggest that index investing distorts the price signal, thereby generating a negative externality that impedes firms' ability to make production decisions. Received March 31, 2017; editorial decision July 5, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Original languageEnglish
Pages (from-to)3461-3499
Number of pages39
JournalReview of Financial Studies
Issue number9
StatePublished - Sep 1 2019

Bibliographical note

Publisher Copyright:
© 2018 The Author(s) 2018. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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