On: Are Index Funds Eating the World?

[empath75]

Doesn't it seem self-limiting? At some point, if prices become totally irrational, wouldn't active investors profit by taking advantage of predictable index fund transactions?

[bbayles → empath75]

This is an under-appreciated point... if 99 people leave money on the table, and the 100th person picks it up, we're back to efficiency in the aggregate.

[Terr_ → empath75]

Yeah, it's a bit like saying: "But what if all the animals in the ecosystem became helpless herbivores?"

[oli5679 → empath75]

What your saying sounds like the Grossman-Stiglitz paradox.

http://www.wilmottwiki.com/wiki/index.php?title=Grossman-Sti...