Tags: Treacherous | Trading | Stocks

WSJ: Low Liquidity Creates Treacherous Trading for Stocks

By    |   Wednesday, 19 Oct 2011 08:12 AM

Liquidity has dropped in the stock market recently, as the global financial turmoil has spooked investors.

And that drop in volume has raised the risk of trading individual stocks, as it has increased the volatility of their prices, experts tell The Wall Street Journal.

Monday represented an example of the decline in trading, with volume on the New York Stock Exchange totaling 3.7 billion shares, down from the average of 4.4 billion so far this year.

The volatility is showing up in increased bid-asked spreads for stocks. Spreads for stocks in the Standard & Poor’s 500 Index have hit their highest levels since late 2009, when markets were recovering from the financial crisis.

The median spread on S&P 500 stocks has surpassed 0.05 percent of their share price repeatedly in recent sessions, compared to an average of just over 0.03 percent for the first seven months of 2011, according to Credit Suisse.

"You try to get something done at one level, and if you take your eye off the screen, it can move to the next level," David Schiff, deputy head of equity trading at JPMorgan Asset Management, tells The Journal.

The volatility may continue as uncertainty seems to rule the market. “Valuations are attractive. Still, the market is likely to tread water until we get the macro concerns behind us,” Eric Teal, chief investment officer at First Citizens Bancshares, tells Bloomberg.




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Liquidity has dropped in the stock market recently, as the global financial turmoil has spooked investors. And that drop in volume has raised the risk of trading individual stocks, as it has increased the volatility of their prices, experts tell The Wall Street...
Treacherous,Trading,Stocks
232
2011-12-19
Wednesday, 19 Oct 2011 08:12 AM
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