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>It is a self-balancing situation. A scenario of "oh my god, everyone is just putting their money on index funds" would never happen. Such a situation is not s
by georgeburdell 8y ago
>It is a self-balancing situation. A scenario of "oh my god, everyone is just putting their money on index funds" would never happen.
Such a situation is not stable if the speed of information is not fast enough. If the market is unable to produce information quickly enough, or market actors don't act fast enough, basic differential equations dictate that you will get oscillations. See e.g., the business cycle.
- ucaetano 8y agoOf course you'll get oscillations (but the business cycle doesn't have anything to do with it), and you don't even need differential equations. But the point of equilibrium is a Nash Equilibrium, meaning that any deviation from it will create forces that push back to it (you can think of it as a valley). So while there will be oscillations, you won't expect large deviations.
- perl4ever 8y agoIt seems to me obvious, yet implicitly overlooked, that people who hold stocks and don't trade aren't affecting the price one way or another. It's only the traders that set prices.
- fjsolwmv 8y agoAnyone who holds stocks bought them, and if they are still generating net wage income will buy more, and presumably will eventually sell them when hey retire.
- perl4ever 8y agoAll that time, however many years they own the stock, they are putting in neither bids nor offers, so they are completely uninvolved with the price. You put in an order, and it influences the price slightly for a matter of seconds. But if nobody traded, there would be no market price.