I think the reason not to worry too much about the passive revolution is that as long as there are money-making opportunities from active trading—people will be incentivized to do it. The end state “everyone is passive—there is no price signal” is not one we can reach from where we are, and it is not a stable equilibrium. If we ever did cross over into “too few hedge funds”, there would such a strong incentive for more, that I don’t think it would last long. But perhaps I misunderstand this critique.
I think the reason not to worry too much about the passive revolution is that as long as there are money-making opportunities from active trading—people will be incentivized to do it. The end state “everyone is passive—there is no price signal” is not one we can reach from where we are, and it is not a stable equilibrium. If we ever did cross over into “too few hedge funds”, there would such a strong incentive for more, that I don’t think it would last long. But perhaps I misunderstand this critique.