So I recently started learning about some various ETF's. Naturally, I had some questions: 1. When you redeem your shares, how much are they worth? I don't understand how SPY, PBJ, QQQQ etc. are priced. Are they priced by total value of the stocks/no. of shares issued? Is there any weighting system going on? 2. I understand, generally, why an ETF would lag moves in the underlying stock. If say AAPL crashes due to bad news, the ETF would follow it because the ETF's NAV has now changed and so its shares will be affected as well (as NAV goes down, demand for those shares will go down as well). But why does the reverse happen? Does it ever happen that the ETF will go down causing it's underlying stocks to go down with it? My question was more of a follow-the-leader type question. I can see why an ETF follows the underlying stocks. If an ETF traded at a discount to its net asset value, the arbitrage opportunity would generate sufficient demand for the discounted ETF shares to close the gap between their market price and the net asset value of the underlying portfolio. But what about the other way? If an ETF went down, why would the underlyings follow?
See: "An Inside Look At ETF Construction" http://www.investopedia.com/articles/mutualfund/05/062705.asp?viewed=1 ... in particular, the section on "The Role of Arbitrage"