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Does Quant-Algo Trading Dominate the Market, if so, what percentage?
I ask, because I don't know. But I assume it makes up the majority of volume. If it is in fact super-sizeable, I wonder if it makes the case for growth and index investing (over value and active investing, respectively).
I've seen a lot of recent activity attributed to rebalancing defined index portfolios -- like 60-40's.
I have also seen activity attributed to sports bettors with no place to go. The piece seems short on real numbers.
I did not enjoy my ride with the Vanguard quants I bought in 2006 when computer algorithms still seemed like a good idea. I sold them as soon as they were back in the black. And I haven't looked back.
In response to your question. I'm thinking that it does along with the high frequency crowd. Look how the machines played the market this past Thursday with the S&P 500 Index moving from a Wednesday close of 3190 to a Thursday close of 3002 for a 5.9% down move. It use to be years back that one percent moves were the big ones and now that the machines are playing the market the five percent moves are becoming quite common. I remember recently reading that some believe that better than fifty percent of the daily volume now comes by way of program trading.
Below is a link to a Seeking Alpha article that states 80% of the volume is believed to come from algo trading programs.
I have also seen activity attributed to sports bettors with no place to go.
Another reference:
Robinhood added more than three million funded accounts in the first four months of 2020, and half of customers who opened accounts this year said they were first-time investors, according to Nora Chan, a spokeswoman for the Menlo Park, California-based firm. E*Trade Financial Corp. had 329,000 net new accounts in the first three months of the year, with 260,000 added in March alone, the firm said in its first-quarter earnings statement. That was more than the company’s previous best annual net record.
While day trading can be risky and Portnoy might not be the best role model for young investors, Emanuel and Geraci said they think younger investors entering the market is positive for the long-term.
“The danger to the accessibility of it is very clear because you are bringing people in who may not be terribly qualified,” Emanuel said. “You learn more when you’re losing.”
Today’s WSJ has an article on page 1 entitled « Investors Bet on Volatility, Making Markets Even Wilder. » It’s behind a paywall, but subscribers can access. The upshot is that that « Volatility trading has grown so big that trading on unexpected market moves can itself move markets. » For me, it’s hard to call the people doing this trading investors. They don’t care which way the market goes, as long as it goes in one direction or the other. Friday’s market was a good illustration, with the Dow shooting up over 800 points, then plunging to a loss, and then rising sharply in the late afternoon.
Comments
I have also seen activity attributed to sports bettors with no place to go. The piece seems short on real numbers.
I did not enjoy my ride with the Vanguard quants I bought in 2006 when computer algorithms still seemed like a good idea. I sold them as soon as they were back in the black. And I haven't looked back.
Below is a link to a Seeking Alpha article that states 80% of the volume is believed to come from algo trading programs.
https://seekingalpha.com/article/4230982-algo-trading-dominates-80-of-stock-market