04-24-2021, 04:22 AM
How index investing increases market irrationality and risk
<!-- SC_OFF --><div class="md"><p>Index investing has been touted for decades as a supremely rational approach, which led to a massive influx of money into index funds and ETFs.</p> <p>However, there is increasing evidence that this investment style contributes to over-performance of the momentum factor, increased correlation between security prices, over-valuation of companies with poor fundamentals and exacerbation of market risk and irrationality.</p> <p>Such critiques were made by <a href="https://pensioncraft.com/michael-burry-interview-are-we-in-an-index-bubble/">Michael Burry</a>, <a href="https://www.realvision.com/shows/the-interview/videos/the-perils-of-passive-indexation">Mike Green</a> and an increasing number of other investment managers as illustrated in this <a href="https://www.logicafunds.com/policy-in-a-world-of-pandemics">paper</a> by Logica.</p> <p>I challenge the supporters of index investing to criticize the arguments brought therein. Have at it.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Ahrideva"> /u/Ahrideva </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/mx4j5c/how_index_investing_increases_market/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/mx4j5c/how_index_investing_increases_market/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>Index investing has been touted for decades as a supremely rational approach, which led to a massive influx of money into index funds and ETFs.</p> <p>However, there is increasing evidence that this investment style contributes to over-performance of the momentum factor, increased correlation between security prices, over-valuation of companies with poor fundamentals and exacerbation of market risk and irrationality.</p> <p>Such critiques were made by <a href="https://pensioncraft.com/michael-burry-interview-are-we-in-an-index-bubble/">Michael Burry</a>, <a href="https://www.realvision.com/shows/the-interview/videos/the-perils-of-passive-indexation">Mike Green</a> and an increasing number of other investment managers as illustrated in this <a href="https://www.logicafunds.com/policy-in-a-world-of-pandemics">paper</a> by Logica.</p> <p>I challenge the supporters of index investing to criticize the arguments brought therein. Have at it.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Ahrideva"> /u/Ahrideva </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/mx4j5c/how_index_investing_increases_market/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/mx4j5c/how_index_investing_increases_market/">[comments]</a></span>Kind Regards R