hiriskpaul wrote:When funds are discussed, this typically means open ended funds as worldwide they completely dominate compared with closed ended funds. When net cash is withdrawn, this necessitates the fund selling stocks. Those stocks could go to a variety of different types of investors, but it will be mostly institutional buyers, some of which will be other retail funds. Most private investor money sits in funds now.
Regarding brokers attempting to cash in by doing the opposite of their clients, I suspect that profiting from it is beyond the limits of arbitrage. There are also rules brokers need to be careful of breaking. This sort of thing might look like front running.
Is there any evidence that institutional investors buy more equities at the bottom of bear markets, and sell them at the top of bull markets, beyond simple rebalancing? Defined benefit pension schemes could do this, if they had a crystal ball. Some defined contribution funds could do it too. Most retail funds could not do it, even if the managers wanted to. It may be that the fund investors buy high and sell low greatly out number those who do the opposite, but those investors are, on average, much richer.
An advisory broker would be getting into very deep water if he took opposite positions to his clients. An execution only broker could, however, in principle, sell anonymised data to a large investor who could trade it. It is doubtful whether the trading would show a profit after costs though. I expect the truth here is that private investors do, on average, lose a few basis points per trade to the professionals. Nonetheless, those of us with very low costs, well diversified portfolios, and a ten year plus average holding time do not have too much to worry about that.