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It doesn't cause it to rise in price relative to others in the same index.
by darawk 8y ago
It doesn't cause it to rise in price relative to others in the same index.
- cm2187 8y agoBut these strategies do have all sorts of side effects on the market. It pushes the correlation between stocks up. Investors might be more hot handed as their investment is more liquid, which may result in more selling in a dip. There are all sort of algorithmic strategies that are pro-cyclical. And also it reduces discrimination between stocks which results in weaker stocks benefiting from just being in the index and being overpriced.
- darawk 8y ago> It pushes the correlation between stocks up. Citation needed. I seriously doubt that this is true. > And also it reduces discrimination between stocks which results in weaker stocks benefiting from just being in the index and being overpriced. Not really. Retail investors allocating their money to index funds just leaves the price-setting power to the professionals, which, on net, ought to be better for price discovery anyway.
- cm2187 8y agoFirst result on google: https://www.bloomberg.com/news/articles/2018-09-09/asia-stocks-point-to-drop-dollar-holds-advance-markets-wrap https://www.bloomberg.com/news/articles/2018-09-09/asia-stoc... But it is kind of intuitive anyway. ETFs are becoming significant in volumes, so when net volumes buy or sell them, they force the sponsor to buy/sell the whole market reducing price discrimination. To have any price setting power you need large volumes.
- darawk 8y agoI don't see anything in that article that supports your point. Can you snippet out the part that you think does?