A critique of the claim that passive investing is a bubble

Re:A critique of the claim that passive investing is a bubble by navigatesol on Thursday September 05, 2019 @01:20PM (#20888846)

>If a flurry of investors rush to enter or exit an ETF, then a huge amount of trading has to be done to create or redeem the shares. Just because the APs create this trading impact, instead of the fund itself, is a distinction without a difference. The underlying stocks in the index are subject to market impact.

But the trading isn't the cause of the market impact, it's the redemptions that occur first, and force the trading. There had to have been economic or financial reasons for those redemptions to occur. The fact that when everyone tries to sell at one, there's aren't enough buyers is a story of the ages. That ETFs will suffer the same consequences in a run is hardly unique to them as financial assets.

[ Parent | on HN ]

Re:A critique of the claim that passive investing is a bubble by smogcutter on Thursday September 05, 2019 @02:45PM (#20889604)

Right? I don’t see what the fuss is about. If the argument boils down to “price and liquidity will drop in a sell-off”, well that’s basically a law of nature. I don’t see why index funds are a special case.

[ Parent | on HN ]