At the End of the Day, Market Volatility Happens at the End of the Day

Sheaff Brock | Market Volatility in End-of-Day Trading Volume

At the End of the Day, Market Volatility Happens at the End of the Day

Bet you didn’t know this startling statistic—26% of all stock market trades are done at the very end of the trading day!

How does that relate to the market volatility fear reaction that many investors are experiencing these days? Take a closer look. In just the first quarter of 2018, there have been four times as many days with a greater than 1% price move as there were in all of 2017. When weaker job statistics, political scandals, and scuttlebutt about possible trade wars are added to the mix, there’s small wonder that there’s a growing perception of there being high risk in stocks.

There are many factors which can affect stock prices 24 hours a day, 365 days of the year. The stock market, by contrast, trades for only 6 ½ hours a day during only 240 days out of the year. In those last minutes of the trading day, traders want to close out their positions to avoid the risk of a large price movement due to news flows that happen between the close of one and the open of the next trading day. What’s more, since many option traders and index fund managers buy in the morning without making payment for their purchases, they opt to close their positions by the end of the day to avoid having to commit the funds.

“The shift toward late-day trading has also increased the closing auction’s importance, where more than $10 billion worth of stocks are traded on average,” The Wall Street Journal’s Fred Imbert reports. He goes on to say, “The data signals liquidity is at its highest at the end of the day, meaning investors can buy or sell large amounts of shares with a lesser likelihood of causing a big move in the stock price.”

And it’s those very “big moves,” condensed into minutes at market close, that create the perception of risk from volatility. Perception—now that’s the operative word, Sheaff Brock Managing Director Dave Gilreath is quick to remind us. Risk and volatility are two different things, Gilreath asserts. Investing risk entails committing resources to areas in which one has no means of obtaining information or analytics. Volatility, on the other hand, refers to upward as well as downward movements in the market.

Volatility is the friend of active portfolio managers such as Sheaff Brock, Gilreath explains, because active managers can be better positioned to improve returns and reduce risk outside of the indices by exploiting volatility.

At the end of the day, volatility can offer active investors opportunity!

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