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> To me, the interesting question is: if the market is mostly index funds, what does that do? This will never happen. It might be interesting, but isn't a real
by ucaetano 8y ago
> To me, the interesting question is: if the market is mostly index funds, what does that do?
This will never happen. It might be interesting, but isn't a realistic scenario.
- prostoalex 8y agoWhy?
- ucaetano 8y agoI posted it here: https://news.ycombinator.com/item?id=18145067 https://news.ycombinator.com/item?id=18145067 But essentially, as % of market on index funds increases, the returns on arbitrage-seeking actively managed portfolios will increase (vs. the market) to the point that they provide higher returns than the index funds (due to index funds no longer accurately capturing all information available in the market), resulting in a shift of money out of index funds to active funds, decreasing the returns in active funds and keeping the market in equilibrium.