I just realized that @bauhiniacapital wrote about this way more eloquently and also ~5 hours earlier here —https://twitter.com/bauhiniacapital/status/1359919232062873603 …
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macrocephalopod Retweeted
This thread is a great example of the incredible broken brain gymnastics that people will perform to to misunderstand how index funds work and how they impact prices. Not matter how hard I try to explain it, he keeps repeating the same meaningless point I give up! https://twitter.com/whirlybard/status/1360334892236607489 …
macrocephalopod added,
This Tweet is unavailable.4 replies 0 retweets 26 likesShow this thread -
Replying to @macrocephalopod
even a basic analysis of etf creation and redemption would show you that fund flows are driven by momentum
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Replying to @goodalexander @macrocephalopod
furthermore the S&P 500 itself, by virtue of being cap weighted drops companies when they fall which is the definition of momentum investing
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Replying to @goodalexander
To your first point, yes absolutely, but that creates *absolute* momentum (al companies go up together) not *relative* momentum (biggest winners rise more)
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Replying to @macrocephalopod @goodalexander
To the second point, yes I agree, I don’t think I have ever argued with this, in fact I explicitly talked about index adds/deletes as an exception when a passive ETF would need to trade (as well as new issuance or buybacks)
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Replying to @macrocephalopod
I guess - I commonly say that the indexing complex is a source of a large amount of incremental momentum investing relative to the status quo it supplanted and feel justified statistically and causally in saying so given the above -- tho I agree mechanically re S&P itself
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Replying to @goodalexander
I certainly agree that passive investing should be more supportive of momentum *in theory* when it replaces active, although I haven’t seen a ton of evidence for it (one obvious prediction would be that the momentum factor should be working better now but... it’s not?)
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Replying to @macrocephalopod @goodalexander
Even index rebalances, which should add easily observable momentum concentrated in a small number of names, is surprisingly hard to make money from because so many people are trying to do it.
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Replying to @macrocephalopod @goodalexander
Is there a way to detect if rebalance has occured in particular stock just by looking at volume, open and close prices?
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