The popularity of certain exchange traded funds (ETFs) may be causing a lopsided effect on the trading of some company shares. As research shows, three ETFs that track small-company stock indexes account for 20-40% of the trading of certain smaller stocks in the Russell 2000.

Investors gauge a stock by watching the volume of an individual, if a stock is traded heavily then this shows investor sentiment.  When an ETF buys stocks for the entire index, the volume increases, but the ETF is buying based on an index, not on the individual company.  This volume can be misleading for individuals investing in stocks.  Shefali Anand for The Wall Street Journal reports this also has consequences for prices of small companies, which are more vulnerable to market pressures as opposed to larger companies.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.