Oak Associates: Mark Oelschlager On Heavy Trading Volumes Of ETFs

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Oak Associates: Mark Oelschlager On Heavy Trading Volumes Of ETFs

Oak Associates’ co-CIO and portfolio manager Mark Oelschlager has posted a piece on heavy trading volumes of ETFs and recent market volatility.

He writes, “Our suspicions about ETFs’ role in the selloff last week were confirmed by Empirical Research Partners, who noted that the ratio of trading volume in ETFs relative to that of the entire market was about 42% on August 24, a level not seen for any day since early 2009. Concerns about China’s economy triggered selling in global markets, and the quickest way for professional/non-professional investors to pare exposure to stocks was to sell ETFs. This forced the ETFs to sell shares in all the underlying stocks, which forced the prices of those stocks down.”

He adds: “Empirical Research Partners has discovered a positive correlation between the volatility index and the percentage of dollar volume that is represented by ETFs. As they write, ‘when a panic sets in, it’s a lot easier to hit the sell button one time instead of 500 times.’ But one wonders if hitting the sell button, or even having the ability to hit the sell button, is right/good in that situation.”

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Mark Oelschlager on heavy trading volumes of ETFs and recent market volatility

Dear Fellow Shareholder,

Last week we said that, given the indiscriminant nature of the selloff in stocks, we suspected that exchange traded funds (ETFs) were a driver of the weakness. ETFs are like m