Intra-day volatility. Why?

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ChinchillaWhiplash
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Intra-day volatility. Why?

Post by ChinchillaWhiplash »

So with the markets whipsawing constantly, even within the day there is a ton of volatility it would seem. Was wondering what is causing these swings. Is it constant day trading combined with options by retail traders? Is it institutional manipulation with algorithms? Something else entirely? I haven’t really watched markets too closely before, but this activity with the up down swings seems unusual. Is this the new norm?
Hyperchicken
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Re: Intra-day volatility. Why?

Post by Hyperchicken »

A giant bull and a giant bear are fighting in the sky. That's why we have day and night, moon phases, seasons and market fluctuations.
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arcticpineapplecorp.
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Re: Intra-day volatility. Why?

Post by arcticpineapplecorp. »

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hope that answers it.
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samsoes
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Re: Intra-day volatility. Why?

Post by samsoes »

Algorithmic trading. This is high volume (tens of thousands of orders per second) triggered by complex intra-day calculated values. These orders are not entered by a human representing a customer's order. Rather, a computer is making the trading decision based on the data feeds it is consuming. This is such a big-money endeavor that speed of the data and the trades placed are constrained only by the speed of the photons on the fiber. Minimizing distance is critical. Many algorithmic trading firms pay big bucks to have their trading equipment co-located on the same computer floor as the executing firm's matching engine to minimize the distance of the fiber cables for first dibs receiving data and blasting their order flow.

Read Michael Lewis' Flash Boys.
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MiddleOfTheRoad
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Re: Intra-day volatility. Why?

Post by MiddleOfTheRoad »

I guess this is what the chartist call “support” :P The bottom is near.
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ChinchillaWhiplash
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Re: Intra-day volatility. Why?

Post by ChinchillaWhiplash »

APC, that last cartoon graphic is great! :P Don’t worry, I’m in it for the long haul. Just contribute and invest each month in index funds to max out tax deferred contributions. Do have some side bets in Roth and taxable though 8-) Think samsoes hit the nail on the head. Just curious as to how the market could swing so much so quickly on a regular basis. It’s pretty crazy if you think about it. Overall movement is still up over the long term which is what matters most to investors. I’m sure a lot of traders are making a lot of money with the volatility though.
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nedsaid
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Re: Intra-day volatility. Why?

Post by nedsaid »

ChinchillaWhiplash wrote: Fri Jan 28, 2022 11:16 am So with the markets whipsawing constantly, even within the day there is a ton of volatility it would seem. Was wondering what is causing these swings. Is it constant day trading combined with options by retail traders? Is it institutional manipulation with algorithms? Something else entirely? I haven’t really watched markets too closely before, but this activity with the up down swings seems unusual. Is this the new norm?
Keep in mind that Hedge Funds have Trillions of dollars under management. These funds follow pretty aggressive strategies like leverage and shorting. Severe intra-day volatility can just be some Hedge Fund guy who was taking crazy risks suddenly unwinding their position. No rhyme or reason to it, Hedgies do weird things so sometimes markets do weird things. Just the way markets are nowadays.
A fool and his money are good for business.
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whodidntante
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Re: Intra-day volatility. Why?

Post by whodidntante »

Hyperchicken wrote: Fri Jan 28, 2022 11:23 am A giant bull and a giant bear are fighting in the sky. That's why we have day and night, moon phases, seasons and market fluctuations.
Plausible.
UpperNwGuy
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Re: Intra-day volatility. Why?

Post by UpperNwGuy »

We like to blame it on computer-generated trades, but I'm wondering what the intra-day volatility was like before the age of computers. I suspect it was still high, but I don't know for sure. Does anyone here study the pre-computer stock market?
tonyclifton
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Re: Intra-day volatility. Why?

Post by tonyclifton »

Revisiting this thread and want to thank arcticpineapplecorp for the charts, graphs, and levity.
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Taylor Larimore
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Re: Intra-day volatility. Why?

Post by Taylor Larimore »

tonyclifton wrote: Thu Sep 22, 2022 1:32 pm Revisiting this thread and want to thank arcticpineapplecorp for the charts, graphs, and levity.
Bogleheads:

Arcticpineapplecorp has given us an outstanding post with an important message (stay-the-course). I can only imagine the work that was necessary to prepare it.

Thank you arcticpineapplecorp!

Best wishes.
Taylor
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Beliavsky
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Re: Intra-day volatility. Why?

Post by Beliavsky »

samsoes wrote: Fri Jan 28, 2022 11:31 am Algorithmic trading. This is high volume (tens of thousands of orders per second) triggered by complex intra-day calculated values.
It depends on the algorithms used. If they are mean-reversionary (buy/sell stocks after they fall/rise) they can reduce intraday volatility.
adamthesmythe
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Re: Intra-day volatility. Why?

Post by adamthesmythe »

Back in the day Paul Kangas* used to explain every major move during the day with some sort of rationale.

It was all bogus, of course.

*The Nightly Business Report
Beliavsky
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Re: Intra-day volatility. Why?

Post by Beliavsky »

ChinchillaWhiplash wrote: Fri Jan 28, 2022 11:16 am So with the markets whipsawing constantly, even within the day there is a ton of volatility it would seem. Was wondering what is causing these swings. Is it constant day trading combined with options by retail traders? Is it institutional manipulation with algorithms? Something else entirely? I haven’t really watched markets too closely before, but this activity with the up down swings seems unusual. Is this the new norm?
A current Bloomberg article Bond Yields Surge as Rate-Hiking Race Sinks Stocks says
The S&P 500 could be poised for more downside after breaking through a rare technical indicator, according to Berenberg strategists including Jonathan Stubbs.

It has traded below its 200-day moving average for over 100 sessions -- a streak that was previously breached only during the tech bubble and the global financial crisis in the past 30 years. In both of those instances, the gauge posted most of its losses after surpassing that level, with the index declining by a further 50% in 2000-2003 and 40% in 2008-2009 before troughing, they said.
From 2003 to 2022, the daily standard deviation of stock market (SPY) returns was much higher when SPY was below its 200-day moving average than when it's above, 2.17% vs. 0.81%, vs. 1.21% for all days. Average returns are higher below the 200-day, but the Sharpe ratio has been lower because of the higher volatility. As I have written before, rebalancing from bonds to stocks when stocks have been falling is generally too risky, because stocks are more volatile after they have fallen.

Code: Select all

   first_date    last_date         #obs       #years obs_per_year
   04/14/2003   06/17/2022         4830        19.18       251.88

        var      count      x_min      x_max      count       mean         sd        rms     Sharpe        min        max
        all       4630   -39.0483    21.5480  4630.0000     0.0403     1.2057     1.2062     0.5311   -10.9424    14.5198
       <=.0        907   -39.0483    -0.0152   907.0000     0.0571     2.1693     2.1688     0.4177   -10.9424    14.5198
        >.0       3723     0.0010    21.5480  3723.0000     0.0363     0.8139     0.8145     0.7073    -5.7649     4.4041
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Re: Intra-day volatility. Why?

Post by abuss368 »

nedsaid wrote: Fri Jan 28, 2022 9:50 pm
ChinchillaWhiplash wrote: Fri Jan 28, 2022 11:16 am So with the markets whipsawing constantly, even within the day there is a ton of volatility it would seem. Was wondering what is causing these swings. Is it constant day trading combined with options by retail traders? Is it institutional manipulation with algorithms? Something else entirely? I haven’t really watched markets too closely before, but this activity with the up down swings seems unusual. Is this the new norm?
Keep in mind that Hedge Funds have Trillions of dollars under management. These funds follow pretty aggressive strategies like leverage and shorting. Severe intra-day volatility can just be some Hedge Fund guy who was taking crazy risks suddenly unwinding their position. No rhyme or reason to it, Hedgies do weird things so sometimes markets do weird things. Just the way markets are nowadays.
Dave knows all about this.✈️✈️🤣

His Hedge Fund moves markets!

Best
Tony
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Re: Intra-day volatility. Why?

Post by nisiprius »

1) There's nothing unusual about the amount of volatility. It's been lower, it's been higher. It's not a new normal, it's a normal normal.

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2) The efficient market hypothesis says that the market follows a random walk around correct valuations. Being random, it is unpredictable... and it is no more useful to ask about the causes of the moment to moment fluctuations than to ask why a particular gust of wind came along at 9:22:31 instead of 9:22:48.

Market efficiency sucks all the predictability out of stock price movements and leaves us only with an unpredictable, inexplicable residuum.
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Re: Intra-day volatility. Why?

Post by abuss368 »

arcticpineapplecorp. wrote: Fri Jan 28, 2022 11:29 am Image

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hope that answers it.
Absolutely incredible. A picture is worth so many words!

This helped put things in perspective and I would like to reach out and simply say “thank you” for putting that together!

Have a great weekend.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Logan Roy
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Re: Intra-day volatility. Why?

Post by Logan Roy »

nisiprius wrote: Fri Sep 23, 2022 7:36 pm 2) The efficient market hypothesis says that the market follows a random walk around correct valuations. Being random, it is unpredictable... and it is no more useful to ask about the causes of the moment to moment fluctuations than to ask why a particular gust of wind came along at 9:22:31 instead of 9:22:48.

Market efficiency sucks all the predictability out of stock price movements and leaves us only with an unpredictable, inexplicable residuum.
I did test this hypothesis a while back. If you measure from every point, to every point, in the S&P, over the past 150 years, the probability of a positive return over any future period should have no relationship to whether a return was positive/negative over any past period. So you map all of these, with a random walk, and you get a pretty flat distribution of 0.5 probabilities at every point (X-axis past returns +/- .. Y-axis future).

With the market, the chart's not flat. Even adjusting for the general uptrend of markets (which makes price direction increasingly predictable as your window grows), this mapping reveals momentum and mean reversion over all periods, with probabilities as high as 3 (so past returns over certain periods can forecast the direction of future returns up to 6x better than chance).

Even with a modern computer, this kind of analysis is a bit slow. So doing this in the 1970s might have taken days, and may have been limited by memory. How actionable this is aside, what it tends to break down to on a day to day basis is lots of small probablistic bets on things likely to impact future easing vs tightening (which is what really moves prices). My own perspective is that academia likes to write markets off as random/chaotic, so academics can feel that they have a superior understanding. I don't share that view.
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