Hmmm - think this info is a bit late in coming?
Maybe strategies will change now?<ggg>
Saturday January 20 2:45 PM ET
Institutions Behind Big Stock Swings
By Haitham Haddadin
NEW YORK (Reuters) - Tracking the daily action on Wall
Street can be a lot like watching a basketball game -- the
highlights are the opening tip-off and the frenzied play at the
end.
A team of academic finance researchers recently took a fresh
look at the so-called ``U-shaped'' pattern of daily stock market
trading, the high volume at both ends with a dip in the middle.
Their conclusion: Don't blame share dealers or rapid-fire day traders for increased stock
price swings, but the 800-pound gorillas -- institutional investors such as mutual funds,
pension funds and banks.
That's a shocker because mutual funds usually underscore their long-term performance and
stock-picking skills, rather than talk about turning a fast buck.
The researchers, led by Stanley Block, professor of finance at Texas Christian University in
Fort Worth, Texas, based their study on a rare look at the 1988 trading records of
NationsBank Dallas, which is now part of Charlotte, N.C.-based Bank of America Corp.
(NYSE:BAC - news).
The findings are important for individual investors who compete with professional traders
and institutional investment managers, as they must be aware of the influences that others
have on stock prices and performance, according to the researchers.
``Our evidence shows that institutional investors provide formidable demand at the end of
the day,'' Block said in the study, published in the December issue of The Journal of
Business Research. ``While short-term traders may be on the other sides of those
transactions, it is clear that the fundamental demand arises from the institutional investors.
``Buy decisions tend to be concentrated during the market's opening and closing hours, and
these are the same times when stocks tend to show higher-than-average returns.''
Rare Glimpse At Bank's Trading Records
The research team examined more than 3,500 time-stamped trading records from the trust
division of NationsBank for 1988, data which they say is still relevant today.
Block and his colleagues -- Dan French of New Mexico State University and Edwin Maberly
of the University of Canterbury in the United Kingdom -- found nearly 48 percent of
NationsBank's buy decisions came in the first half hour of trade or in the last hour ahead of
the 4 p.m. stock market close.
Even more significant, the early and late deals amounted to about 54 percent of the dollar
volume of all equities traded by NationsBank for the day.
For sell decisions, just over 37 percent were made at the start or end of the day, accounting
for some 40 percent of the day's dollar volume.
The low point for trade decisions was between 1 and 2 p.m., with just over 7 percent of the
bank's buy decisions and 6 percent of sell decisions made during that hour.
Block called the pattern revealed by the data ``very important.''
``It's the first time it's out to the public,'' he told Reuters in a telephone interview. ``That was
a very special circumstance. It's almost impossible to get inside a bank or a bank trust
department to get the type of data we had.''
Surges in demand for stocks can send equity indices jumping, or ``gapping up,'' at the open
from the previous day's close. This was seen as recently as Wednesday, when the Nasdaq
Composite index (^IXIC - news), loaded with high-tech companies such as software giant
Microsoft Corp. (NasdaqNM:MSFT - news), shot up more than 90 points at the start of the
regular trading session.
At other times, the market can turn around dramatically, seemingly out of thin air, either
spiking higher at the close from an early slump, or tanking after a strong rally.
``To me, it looks almost like a basketball game where you only have to watch the last five
minutes because that's where all the excitement is,'' said Peter Gottlieb, portfolio manager at
Chicago-based First Albany Asset Management.
``There's a lot of sophisticated tools and strategies that some institutions use, moving
significant money around at the beginning or the very end of the day,'' he said. ``This has a
significant impact on the volatility during those times.''
Early, Late Volume Spikes Are Not From The Fast Money
The researchers believe their findings are more than mere coincidence. And the findings run
counter to previous studies that attribute the ``U-shaped'' pattern to short-term investors
such as market makers, or share dealers, and day traders.
``We came up with evidence that ... (it) is the portfolio managers who really put the pressure
on traders and market makers to have that activity,'' Block said.
Block, noting that the day trading phenomenon was less relevant during the period analyzed,
says his definition of that group includes professional traders at banks. Day traders -- who
typically turn trading positions into cash at the end of the day -- buy and sell stocks several
times a day at lightning speed to capitalize on small price moves.
Even some money managers agree with Block's findings.
``It takes a lot of day traders ... to equal even one institution moving a couple of hundred
thousand shares at the end of the day,'' said Gottlieb. ``A lot of the day trading money has
been washed out in the last market downturn.''
Investors tend to trade more at the open due to the piling up of overnight information and
corporate news. Big players usually avoid the after-hours market because there are few
buyers and sellers around.
``In the morning, it's a reaction to what happened the night before, like news or morning
comments by analysts covering the stocks,'' Gottlieb said. ``At the close, it's more
institutional money employing trade strategies like tracking an index ... or part of an arbitrage
strategy versus options or an index.''
Others were skeptical of the study's results.
Ned Riley, chief investment strategist at State Street Global Advisors, which manages $740
billion, said the public was contributing just as much, if not more, to volatility.
Fifty percent of U.S. households have either a direct or indirect interest in stocks today, up
from 30 percent a decade ago, he said, and the top 15 Nasdaq stocks, including behemoths
such as Internet gear maker Cisco Systems Inc. (NasdaqNM:CSCO - news), are dominated
by non-institutional money.
``The public is creating a lot more volatility,'' said Riley. ''If a stock like JDS Uniphase
(NasdaqNM:JDSU - news) is up 12 percent, and retail volume is three times that in
institutional, then I would say the retail guys are creating the volatility,'' he said.
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