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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: James F. Hopkins who wrote (2895)	12/26/1998 11:16:00 PM
From: set	Respond to of 99985

re: indexing again lemme give this a shot. MSFT is X% of the index. Let's say for simplicity that all the index funds are managed by one computer as one pool of money. On monday morning that computer is going to buy or sell MSFT as need be until X% of that pool of money, new and old all together, is in it. The moment the distribution of holdings by $$ amount within the pool of money is equal to the %% weightings by capitalization in the index, the computer is up to date. The next moment it does it again. In theory that should not effect the pricing of stocks unless, as is the case today, the pool of money that computer runs is overwhelmingly large. In theory, for example, indexing money going into GE would be met with fundamental selling based on price at some point. But if that fundamental selling does not occur or is insufficiently large to control the price, then the market, though liquid, becomes inefficient, and that's how you get the MOMO effect, the big flywheel. BTW military spending appears to me to operate much the same way, both in the gov'ts planning and in its effect on the economy, but that's another matter. so - A) IS that what you're talking about? B) if so, is there any way to find out the $$ amount of index money, new and old, that will be in the market on monday? C) if no to A, then of course, what am I missing? Shahar