Blog Post from TheUSADebate.com
A concept that seems to be gaining momentum as we advance further in technology is the idea of keeping the Stock Market open 24-7 for trades through the use of the internet and computers. The idea, on the surface, sounds great, not only can you trade when convenient, but market lovers can follow it constantly, 24-7 if they wish. Sure, it would be nice to have a stock market that had the flexibility, particularly for people that work while the market is open, but this positive comes with entirely to many negatives for me. First off, I would like to point to the implied daily volatility that would follow such a change. As bad news on companies (Particularly smaller companies) comes out you will generally see a day long downtrend the stock takes as a result. The same is true for a bit on good news, except that the stock generally follows a day long uptrend. Fortunately though, the extent to how far the stock can travel is contained to the number of people who make the decision to trade during that trading day. The same holds true for the weekends, if you pay attention to the markets enough you will find that big negative news bits (such as the US credit downgrade) are held for Fridays at closing. The reason for this being that investors will have the weekend to digest and forget the news they heard and not kill the stock market in the process. Now, I realize the general response to this statement is that the only companies who really make that big of daily changes are penny and small cap stocks. Sure, they do tend to have higher percentage changes than larger companies, but if you think big companies don’t have large price swings check out what happened after Google’s last earnings report (Stock rose 13%). This argument that small cap stocks are the ones with extra volatility bring me to the point that the only people who would really love a 24-7 stock market are small cap and penny stock traders. That is, not to say long term investors would hate it but do you really think Warren Buffett cares to have the extra time to buy or sell shares in companies that he holds for 10+ years at the price of added volatility? I would imagine not because when a stock is held for that amount of time the difference of buying in at $10 a share and $10.07 really isn’t going to make an impact. I am not saying that we should neglect the fact that traders would like the 24-7 stock market but the fact that they may prefer a 24-7 stock market does not make up for the increased volatility and irrationality in the markets.
A concept that seems to be gaining momentum as we advance further in technology is the idea of keeping the Stock Market open 24-7 for trades through the use of the internet and computers. The idea, on the surface, sounds great, not only can you trade when convenient, but market lovers can follow it constantly, 24-7 if they wish. Sure, it would be nice to have a stock market that had the flexibility, particularly for people that work while the market is open, but this positive comes with entirely to many negatives for me. First off, I would like to point to the implied daily volatility that would follow such a change. As bad news on companies (Particularly smaller companies) comes out you will generally see a day long downtrend the stock takes as a result. The same is true for a bit on good news, except that the stock generally follows a day long uptrend. Fortunately though, the extent to how far the stock can travel is contained to the number of people who make the decision to trade during that trading day. The same holds true for the weekends, if you pay attention to the markets enough you will find that big negative news bits (such as the US credit downgrade) are held for Fridays at closing. The reason for this being that investors will have the weekend to digest and forget the news they heard and not kill the stock market in the process. Now, I realize the general response to this statement is that the only companies who really make that big of daily changes are penny and small cap stocks. Sure, they do tend to have higher percentage changes than larger companies, but if you think big companies don’t have large price swings check out what happened after Google’s last earnings report (Stock rose 13%). This argument that small cap stocks are the ones with extra volatility bring me to the point that the only people who would really love a 24-7 stock market are small cap and penny stock traders. That is, not to say long term investors would hate it but do you really think Warren Buffett cares to have the extra time to buy or sell shares in companies that he holds for 10+ years at the price of added volatility? I would imagine not because when a stock is held for that amount of time the difference of buying in at $10 a share and $10.07 really isn’t going to make an impact. I am not saying that we should neglect the fact that traders would like the 24-7 stock market but the fact that they may prefer a 24-7 stock market does not make up for the increased volatility and irrationality in the markets.