Abstract
Index funds persistently perform better than actively managed funds as investment products but passive investing remains a minority in the market. Extant literature provides much insights into explaining this puzzle but mainly relies on an economic and instrumental rationality. To provide a fresh perspective, we bring in an institutional analysis of financial markets and leverage the research on expert control. We suggest that chartered financial analysts (CFA) program, the most important global institution that produces experts in active investing, play a crucial role in containing the growth of index funds and that, to do so, these investment experts exploit the economic and institutional conditions of markets. We test and confirm our predictions with a sample of 20 countries between 2000 and 2012. We contribute to research on financial markets and expert control.
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