miliarity of stocks but, like index futures, much higher liquidity and su-
perior tax efficiency. Today when investors want to take a position in the
market, it is most easily done with stock index futures or exchange-
traded funds. Index options give investors the ability to insure the value
of their portfolio at the lowest possible price and save on transaction
costs and taxes.
Despite the opposition of such notable investors as Warren Buffett
and Peter Lynch, there is no hard evidence that these index products
have increased volatility or harmed investors. In fact, it is my belief that
these index products have increased the liquidity of the world’s stock
markets, enabled better diversification, and led to higher stock prices
than would be available without them.
268 PART 4 Stock Fluctuations in the Short Run