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super,
I agree that too many ETFs are being created and that narrow sector
ETFs can distort some market sectors.
However, I cannot tell from your post if you are against all ETFs
and/or if you are a supporter of Random Walk theory.
ETFs in market segments with significant market cap have little
impact compared to institutions and hedge funds.
And even the most ardent academic supporter of Random Walk thoery
agrees that the original version of the theory is wrong.
My take from the article cited below in that some ETFs in narrow
market sectors are distorting volume as an indicator.
But institutions and hedge funds have been causing the same
distortions for years; why point out ETF impacts without mentioning
the impacts of institutions and hedge funds.
I'm sorry if this appears to be a rant; for some reason CNBC and some
commentators have been ranting about ETFs during the latest market
downturn even though ETFs had absolutely no impact on the computer
glitch in the Dow.
Ross
--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxx>
wrote:
>
> Anyone trading small caps might be interested in an article in
today's
> Wall Street Journal 3/9/2007 which discusses how ETF trading is
> distorting volume and may hurt volume as a technical indicator.
>
> The article is in the Money Section. ETFs Build Presence in Shares
>
> http://users2.wsj.com/lmda/do/checkLogin?mg=wsj-users2&url=http%3A%
2F%2Fonline.wsj.com%2Farticle%2FSB117340540305631813.html%3Fmod%
3Dtodays_us_nonsub_money_and_investing
>
> Most people do not understand ETF volume, the impact ETF volume has
on
> individual share volume or individual share prices. They think ETFs
> are priced on supply and demand and that ETF volume works the same
as
> the volume of ordinary stocks. In addition, there are differences in
> how mark to market pricing is done on the trading exchanges.
>
> Vomund explains some of this in his book ETF Trading Strategies
Revealed
>
> There are also articles that explain bits and pieces on the
internet.
>
> Specialized, or sector ETFs, are having the same impact on stock
> volume totals in individual shares in a sector or in a specialized
> area like socially responsible stocks. As the specialized ETFs grow
in
> popularity so will their ability to distort the meaning of share
> volume and share pricing.
>
> When an ETF fails to achieve enough trading volume to cover its
costs,
> the sponsor will liquidate it and cause the opposite volume issues
to
> the downside.
>
> All this will provide more support for Random Walk.
>
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