Have Index Funds Buoyed US Large Caps?

Recently, we noted that the negative average size premium in the US over the past decade was mainly a reflection of the S&P 500 Index returning well above its long-run average. That’s led some people to wonder why the large cap index has fared so well. Many have laid this at the feet of index fund popularity, suggesting flows to these funds have imparted an upward bias to market prices and lifted US large cap stock indices. But if index fund flows are to blame, why aren’t we seeing the effect internationally?