The more accurate a market is at pricing securities, the less severe the magnitude of bubbles and subsequent crashes. Bubbles are extreme examples of overoptimistic pricing.
To be clear, I do NOT know if index funds are causing pricing to be less, or more, accurate. I don't think anyone else knows either.
That said, it seems to me that (1) the ongoing mass-scale removal of intelligence from the investment process is unlikely to make pricing more accurate, and (2) these days, stock prices are looking frothy by many measures (e.g., Shiller CAPE).
To put it another way: the actual value of a no-dividend no-vote stock is precisely zero. The price is whatever the buyer and seller agree on, right? So how can one price be more "accurate" than another?
That right is the ultimate determinant of the value of a no-dividend no-vote stock: fractional ownership of the right to proceeds in the event of liquidation, after those above have had theirs.
As a higher-risk asset, it produces greater returns, since otherwise there is an arbitrage: buy bonds issued by the same company instead. This arbitrage lasts until the bond becomes "expensive", and therefore produces worse returns (since its payout is independent of its price).