Index-Fund Bans and Hedge-Fund Data

How should index funds be illegal?

We have talked before about the delightfully odd theory that ownership of multiple firms in the same industry by diversified mutual funds is an antitrust problem. Those funds care about industry profits, not individual companies' success, and so push companies not to compete too hard, leading to higher prices for consumers. And, the theory goes, this is the sort of industry-wide collusion that antitrust law was supposed to prevent. I sometimes shorthand this theory as "index funds are illegal," which seems to rub its proponents the wrong way. Index funds are popular, and have a lot of academic and governmental support. If your clever new academic theory is that they should be banned, then your theory probably isn't going places.