I apologize right off the bat if this sounds stupid, but my question relates to how ETF's balance themselves and if their buying/selling of shares to rebalance can cause a feedback loop.
Let's talk about SPY. Say Apple is 10% of the holding. And Apple had a horrible quarter, causing the stock to sink 10%. Now investors are selling and the markets close. When the manager's SPY come to balance, they also have to sell a proportionate amount of shares to rebalance their holdings.
Now wouldn't this cause a feedback loop? SPY dumps their shares to rebalance which causes others to think that the market will go even lower and basically we have a run on Apple.
How exactly do ETF's balance their holdings to resemble the index and is such a feedback loop possible?
Submitted November 01, 2018 at 11:33PM by jasonpapajohn https://ift.tt/2EVxmhe
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