Hi Mish
I have a question regarding ETFs. I understand that ETFs can be bought and sold throughout the day on stock exchange at the market determined price. I also understand that each share of ETF represents interest in the underlying assets. Does it means if there is a demand for the ETF throughout the day does this ETF has to buy its underlying assets as soon as possible (same if there is sell pressure ETF has to sell its underlying assets). During the financial crisis of 2007 CDOs were holding its prices when underlying assets prices were falling. There was a fake demand created between the banks that was faking the market. My question is can the same happen to ETFs. Can the big investors trade ETFs shares between themselves creating fake demand that would not necessary represent value of what ETF holds. I hope you can clarify this.
Thank you