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You’re assuming the fund’s volume remains constant. In reality there are flows to the passive funds. If one stock in the fund drops significantly, the fund buys less of this stock, reducing demand and increasing the weight of the sellers. Price drops further and loop continues.
The fund buys the same proportion of outstanding shares regardless of whether the price has gone up or down.
Ah yeah, you’re right. I still think it’s something to do with the flows but can’t figure it out myself. One day...
As the price falls, the same fund inflows result in less and less buying in $ value, and the price only needs to fall relative to the index for this effect. I expect Mike has the details in his white papers.
Yes, and as I said in the tweet you are replying to, the fund will buy the same percentage of free float of every stock in the index, it won’t buy a smaller percentage of the ones that fell in price. 1/2
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