How Does Passive Investing Affect Stock Prices? Evidence from Csi 300 Index Additions

Using the data of China Securities Index (CSI) 300, we analyse how passive investing affects stock prices through information contents. We focus on analysing the index effect from the perspective of information costs. We find that index additions lead to more passive investments in the added stocks with less information providing to the investors, and therefore, investors require higher rates of return to compensate for the additional information costs. The empirical findings show that there is an increase in the proportion of passive investment, while there are decreases in the information content, analyst attention and turnover rate of the stock