macrocephalopod

the distortion is evidence of forced buying. If PRNT gets $100b of inflows tomorrow it buys DDD in a manner insensitive to DDD's valuation, which is the underlying critique - price insensitive buying at distorted values

But it would affect all stocks of the ETF in the same way, unless there are major differences in market impact. I think there’s a difference to be made in “passive” passive funds like SPY and active ETFs like ARK complex

the point is there is no "the ETF" -- unless there was only 1 ETF, the Vanguard All World Fund, the entire performance preference of index investors A Priori drives the momentum effect described making for relative momentum effects btwn securities unrelated to fundamentals

Don’t foresee see a chicken and egg issue in the mechanism you’ve described? You’re saying people buy those ETFs which go up, and that in turn leads to relative momentum between constituents of that ETF vs other ETFs. Am I right?

I have two points 1. What caused those ETFs to go up in the first place? 2. This should lead to a higher autocorrelation between ETF returns over time. I’m not sure that has happened. (TBH, I haven’t seen anything which says it hasn’t happened or vice versa)

1) doesn't need to be anything. 2) arguably there's no reason why it should persist, only that it should lead to further ETF creations which arbitrarily distorts security prices. if anything there's an argument for subsequent reversion (next hot thing)

It should persist, right. If the premise is that people flock to the hottest thing, and that drives the price of constituents of hottest thing further up, that would lead to the hottest thing become even hotter attracting more flows and so on and so forth.

If that’s not what we are observing in market barring a few select names, then the premise becomes a little bit shakier.