Index funds directly implemented financial economics’ efficient-markets claims

Evidence

The most significant early practical innovation to emerge from financial economics was the index fund. If, as financial economics suggested, managers’ stock selections failed systematically to outperform broad market indices such as the S&P 500, then why not simply invest in the stocks that made up the index in such a way that the performance of one’s portfolio would automatically track the level of the index? Such an index fund, its proponents suggested, would perform as well as the portfolios chosen by traditional managers, and it would not be hampered by the high fees those managers charged. — Donald MacKenzie, An Engine, Not a Camera, 134

Categorization

• XREF: Canonical instance of performativity: economic theory being directly translated into a market technology. Resonates with the book’s core thesis. — connects to: Financial instruments shape markets rather than merely read them — Max Haiven, Cultures of Financialization, 401; Index-fund growth created an informationally-inefficient price anomaly its own theory rejects — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1152; Efficient-market theory holds stocks are interchangeable rights to income streams — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 460 (+3 more)

Broader Connections

• Index-fund growth created an informationally-inefficient price anomaly its own theory rejects #complicates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1152
• Financial economics actively alters markets rather than merely describing them #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 64
• Efficient-market theory holds stocks are interchangeable rights to income streams #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 460