Stock Prices Becoming More Erratic

Sharper swings in stock market prices are occuring more often than before, reports the New York Times.

Last week was a prime example, with rollercoasting stocks dipping 3 percent on Tuesday morning, raising 3 percent on Wednesday, before tumbling 3 percent again on Friday. August was similarly chaotic, with 4 percent leaps and dives throughout one week.

It seems choppy waters are ahead for stock market traders – a situation not helped by the turmoil in Greece and the downgrade of United States debt. A New York Times study of price changes in the Standard & Poor’s 500-stock market index since 1962 reveals that fluctuations are now more pronounced than in any other time in recent stock market history.

Since the turn of the century, the newspaper discovered that swings of 4 percent or more during intraday sessions would occur almost six times more often than in the four decades leading up to 2000.

Robert Shiller, an economics professor at Yale, feels such violent changes could kick off a pattern of uncertainty in the economy that will reflect in future policies:

“It is not well understood why we have these bursts of volatility. It seems that in these rare periods of bad economic performance and anxiety about the economy, we have volatility in the markets and high volatility in the political arena. Bad things can happen. This worries me.”

Various factors are being blamed for the increased unpredictability, including the more rapid pace of news and trading, the growth of more powerful computerized trading, and the aforementioned global economic turmoil.

One thing seems likely though: risk-takers could thrive. Michael Schmanske, head of United States index volatility trading at Barclays Capital, told the Times that such unpredictability could be “a measure of high opportunity but also peril.”