Making matters worse, the reduced interest in individual equities also results in less analyst coverage, the researchers argue.

However, not everyone’s sold on the findings.

State Street Corp., the third-largest issuer of ETFs, hasn’t observed any measurable difference in bid-ask spreads as a result of their usage, Dave Lavalle, head of SPDR ETF capital markets, said on a panel last month.

Correlation between S&P 500 members also hovers near a record low, siting 47 percent below the six-year average.

What’s more, the funds, while growing, still represent a fraction of the overall U.S. market. More than $1.8 trillion of the U.S. equity market is held by the funds, a $460 billion increase over the past three years, aided by record inflows in 2017. However, Goldman Sachs Group Inc. pegs passive investors at around 14 percent of the S&P 500, up from 9 percent in 2013.

Doomsday Literature

The idea of tighter correlations and a dumber market as consequences of index fund usage is well trodden territory in doomsday ETF literature. A Virginia Tech paper in 2014 found that fewer signals about corporate performance seeped into prices over time because of passive investing. Instead, the investors arrive all at once when earnings results are disclosed.

Goldman Sachs last month found that institutional stock pickers held a record amount of ETFs. That coincided with sector correlation falling below individual stock correlation for the first time since at least 2011, meaning industry bets mattered more than single-stock bets as passive vehicles chopped up the market into sectors.

Still, the researchers on the most recent report note an important caveat to their findings. Though higher ETF ownership coincides with higher trading costs, “this association alone does not imply causality,” they wrote. Index funds are just the most likely culprit, they reason.

“ETF’s are a great innovation, but an over-population of any innovation could cause unintended consequences if left unmonitored,” said Troy Draizen, global head of electronic trading at Convergex Executive Solutions LLC. “We have seen this in many market cycles, from dot-com to the credit crisis.”