The past two decades have seen a significant shift from active to passive investment strategies. We examined how this shift affects financial stability through its impacts on (1) funds’ liquidity and redemption risks, (2) asset market volatility, (3) asset management industry concentration, and (4) comovement of asset returns and liquidity. Overall, the shift appears to be increasing some risks and reducing others. Some passive strategies amplify market volatility, and the shift has increased industry concentration but has diminished some liquidity and redemption risks. Evidence on the links between indexing and comovement of asset returns and liquidity is mixed.