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RyanChudyk

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  1. Selling of the fund but not the underlying? Market makers will make a killing arbitraging by buying units, converting to the underlying and dumping at market. Thats one outcome, and it would get arbitraged out pretty quickly. Probably happens more often than we are aware of. This is the sort of area that quants operate in. In general the heavy movement toward ETFs has not been tested in the markets yet. I would expect in a panic that they are going to exacerbate any volatility to the downside. ETFs have the potential to become the leaders rather than the followers in a rapid market swoon, wherein the selling of smaller etfs may actually result in the etf having to sell underlying stock which of course drives prices down further. Generally known as the law of unintended consequences, or too much if a good thing. In general I would expect market volatility to increase due to the ETF takeover. With conventional mutual funds and pension funds you at least had committees, mandates, and procedures to follow for market downturns. ETFs have removed that buffer. I dont expect the average investor to behave any differently than they always have - you know - buy high sell low. Added to all this is the reality that newer investors, including many on this board, have no experience with a serious market crash. The longer we get away from the last crash, the worse the next one is going to be. JMO. Thanks, wachtwoord, That's excellent info. That's what I thought might happen as well...Someone smells smoke, and quietly exits the building, the guy beside him notices, and does the same, soon everyone can smell smoke and is screaming 'Fire', hysteria occurs and everyone is trying to get out. I'm curious if the actual selling out of the ETF will cause a bottleneck, making it difficult to actually exit the position, causing even more panic and driving the ETF down further... I guess the question is, how much does the actual buying and and selling move the price of an ETF?
  2. Hey everyone, Just curious if anyone knows what happens to an ETF if there is massive exiting from the fund. They haven't really been tested yet in a bear market, and I'm just curious what would happen if panic selling occurred? Thanks
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