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To: Dale Baker who wrote (21170)	10/1/2000 8:54:11 AM
From: Dale Baker	Read Replies (1) of 118717

Fund managers are such wimps - ;<) DO INDIVIDUALS PANIC IN MARKET DECLINES? Many Wall Street experts share a concern that inexperienced individual investors will panic during the sudden corrections that periodically occur in the stock market. These individuals may react by dumping stock professionals worry, exaggerating market declines. But who really panics in market declines? The results of recent research by two finance professors, Patrick Dennis of the University of Virginia and Deon Strickland of Ohio State University, indicate that a far bigger worry should be the behavior of Wall Street's institutional investors -- those professionals who manage more than $100 million. Mark Hulbert, in a recent New York Times article, notes that the finance professors "studied all the trading days from 1988 to 1996 on which the stock market dropped more than 2% percent." If individuals tended to panic in these declines, it would be expected that stocks with little institutional ownership would fall the most on these days. If institutions tended to panic, then stocks with high institutional ownership would fall the furthest. The result? "The stocks that fell the most were those most owned by institutions," Hulbert notes. "Conversely, the stocks that fell the least were those with the lowest levels of such ownership." It appears from this study that institutions tend to be more likely to react spontaneously in an adverse market than individuals, selling stocks at temporarily reduced prices to their detriment. Why do Wall Street managers exhibit this behavior? Hulbert concludes that "institutional investors are much more afraid of being alone at the bottom of the rankings than they are eager to be at the top. After all, a dead-last finish could well result in firing. Running somewhere in the pack -- even if lagging behind the market -- is unlikely to draw much attention." Hulbert concludes that owning stocks with high institutional ownership could make a portfolio more volatile as the professionals quickly dump shares in market declines. But he claims that this behavior could create investment opportunities for individuals if institutional selling gets overdone. The entire academic study on this issue can be downloaded at gates.comm.virginia.edu

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