When I read a study by Hao Jiang, Dimitri Vayanos, and Lu Zheng on the impact of ETFs and other index funds on stock market distortions I couldn’t believe nobody has ever thought of this effect before.
What makes you say “ I couldn’t believe nobody has ever thought of this effect before”? This has been a core criticism of index funds since they were first introduced.
In fact the extreme case almost occurred in 2020 when Tesla was added to the S&P500. There were fears that the buying mandate from index funds would create too much new demand, further pushing the price up and creating even more demand. A kind of “index squeeze.”
What makes you say “ I couldn’t believe nobody has ever thought of this effect before”? This has been a core criticism of index funds since they were first introduced.
In fact the extreme case almost occurred in 2020 when Tesla was added to the S&P500. There were fears that the buying mandate from index funds would create too much new demand, further pushing the price up and creating even more demand. A kind of “index squeeze.”
An argument for fundamental weighting