Using the eXtensible Business Reporting Language (XBRL) mandate as a pseudo-natural experiment, we provide empirical evidence that reduction in information processing costs (IPC) leads to more informative stock price through two channels, the firm-specific information incorporation, and increased disclosures. We also find that younger firms with relatively shorter public disclosure history benefit more than older firms, supporting the conjecture that XBRL accelerates the information incorporation process and expedites market’s learning about younger firms faster. Our results are robust to alternative measures of price informativeness, individual batch tests, placebo tests, and potential bias from financial industry. JEL Classification: G14, M41, M48

In response to the increasing proliferation of exchange‐traded funds (ETFs), and a warning from the Wall Street hero Michael Burry that passive investing has put the stock market into ‘bubble’ territory, we examine the relation between stock ownership by ETFs and mispricing from 2002 to 2018. We find that increased ETF ownership induces overpricing in underlying stocks. We then identify three mechanisms for this relationship: the overpricing of stocks attributable to increased ETF ownership is stronger for stocks that experience an increase in passive ETF ownership; during periods characterised by high investor sentiment; and for illiquid stocks. Our results are robust to a battery of tests including alternative measures for all key variables and are not confounded by the global financial crisis. Additional analyses show that mispricing caused by ETF ownership change is not driven by firm fundamentals and does not exacerbate stocks' information environment around earnings announcement.