[snowwrestler]

The real question is, what is the minimum number of active investors required for accurate pricing of risk in a market dominated by index funds? I'm not aware of an answer that is widely accepted as clearly right.

In theory it might only be one! If there's only one active investor, and they find stocks that the index funds have not priced correctly, then the active investor can pounce, make some money, and move the stock toward a more accurate price. The more they do this, the more money they will make, and the more resources they will have for finding and taking advantage of mis-priced stocks.

The real trick is telling what an "accurate" price is, so that you can evaluate whether the market is working properly. Since the purpose of the market is to find the accurate price, asking whether the price it finds is accurate seems like begging the question.

Is the stock market pricing risk accurately now? Was it pricing risk more accurately 40 years ago, before the growth of index funds? There have been plenty of bull and bear markets during that time... and some nasty unexpected shocks.

[bluGill]

There are more stocks than an active investor can research the fair value of. If we are talking about a single stock, one active investor with enough money can force the "correct" price.