I have read an article and watched a couple of videos about a possible index fund bubble.
One of the arguments to justify this bubble is (if I have understood it correctly) that a very huge proportion of the market being hold by index funds affect the price discovery, since large cap companies in indexes (like S&P 500) could be overvalued against the small cap ones.
If the above is true, correct me if I'm wrong, but indexing is not the problem itself. The problem would be that the majority of investors would buy 'popular' indexes such as S&P 500. If investors were split equally in different cap indexes, then the price discovery problem disappears, right?
I have read as well that despite of index funds hold a very huge part of the market, what actually does price discovery is trading, and index funds usually don't have very high turnovers, so they aren't actually distorting large cap stocks. Is this correct?