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Essay Subject: Examines role played by daytraders (stock market players) in fostering market volatility.... More...

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Paper Abstract: Examines role played by daytraders (stock market players) in fostering market volatility. Use of NASDAQ. Comparison with traditional inveetors and brokers. Contribution of on-line trading and high-tech stocks to market volatility. Proposes a study of day trading activities. Review of the literature. Research design to determine causality. 1 Chart. Paper Introduction: Introduction Background of the Problem As 1999 came to an end, the U.S. stock market posted another bull run characterized by large capitalization, with technology stocks leading the way. Over the past five years, according to Mike Mosser (1999), the NASDAQ has "led the charge in terms of percentage gain among the indexes, followed by the Standard and Poor's 500 and the Dow with the Russell 2000 lagging behind. Technology stocks are increasing significant in this bull market, and these have been traditionally highly volatile stocks. However, as Mosser (1999) has noted, some industry analysts believe that this sector could suffer from too much supply. Internet stocks benefited from the bull market partly because the demand for them far outweighed the supply. But that problem will be reversed through new ini Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Day traders can be segmented into "true day traders" averaging higher volume/investment per trade and riskier (more speculative) portfolios and more typical and numerous traders who average lower volume/investment per trade and less risky portfolios. What haschanged profoundly is not just the numbers of the new rich, but the formulafor becoming one of them. Lee, E. Furthermore, the analysis of thestudy revealed that the average day trader makes about 13 trades in a six-month period, which suggests that the actual population of true day tradersis substantially smaller than the literature has indicated. They're rich (and you're not). Memphis Business Journal, 21(14), 1 -12. Research Problem The potential effect of day trading on market volatility, coupledwith related regulatory and oversight questions, suggests that a study ofday trading activities is warranted. Research Hypotheses Four-research hypotheses are proposed herein: The average day trader is likely to hold a stock for more than a single day. (1999). Nowhere to go but up?" Business Week, No. Gender: M/F (circle one)2. 1 = Always/Very Important or True 2 = Frequently/Somewhat Important or True 3 = Sometimes/Unsure 4 = Infrequently/Somewhat Unimportant or True 5 = Never/Very Unimportant or Untrue11. Nasty pests: Dealing with day traders.Investor Relations Business, 4(13), 1-3. Day trading forecast. Technology stocks are increasing significant in this bull market,and these have been traditionally highly volatile stocks. The portfolios held by day traders are heavily vested in technology, Internet, and "blue chip" stocks. Des Moines Business Record,15(33), 14-16. Business Research for Decision Making.Belmont, CA: Duxbury Press. The average day trader makes trades of about $4, . McGinn (1999) reported thata survey conducted on behalf of Newsweek by Princeton Survey ResearchAssociates revealed that 43 percent of most Americans regard Internetcompanies as the new ticket to wealth. Short-term stock holding creates market volatility.2 . Newsweek, 133(2),42-44. NFO Interactive (www.nfow.com, 2 ) has notedthat a true day trader adheres to a one-day in-and-out Wading strategy,while purported "day traders" who invest online or otherwise without abroker tend to hold stocks for longer periods after purchase. percent in 1998. Business Week (Mandel, 1999) further stated that even companies whichhave successfully raised capital have been negatively affected by thesummer shakeout. These words pushes interest rates up and Net stock prices down.This further creates a wonderful trading opportunity for tech stockinvestors to buy on weaknesses every time the Fed worries about excessivegrowth leading to rising inflation. Perhaps market maturity is simply setting in and stock pricing may bebeginning to reflect the true prospects of the (literally) hundreds of Netcompanies that are at work. Significance of the Proposed Study The proposed study is significant in that it has the potential toshed further light on the exact nature of day trading and the effects ofday trading activities upon market volatility. Fast, yes. NFO Interactive andSpectrem (www.nfow.com, 2 ), in their 1999 study of selected tradersparticipating in an online consumer panel of more than 5 , individuals(many of whom invest or trade online), reported results that are supportiveof the research hypotheses of this study. Vickers, M. Day traders capitalize upon market volatility.13. Online investing is ideal for day trading.16. (1999). NASDAQ's smallorder system (SOES) was created to give orders of around 1, shares thesame attention and execute these orders with the same speed that largerbroker-generated orders have received. E-loan's initial public offering was priced at 14, went off at2 .5 on June 23, and shot up to 63 on July 6 only to fall to below itsfirst-day price by early August. $58.94Intel -8.3 3 .6 $$58. Forbes,164(12), 312. (1999). The characteristics of day traders include: 1) theyhave traded online for nearly three years, as compared to two years for thetypical online investor who is usually regarded as a day trader; 2) theypossess an aggressive risk profile; 3) they invest heavily in technology,Internet, and "blue chip" stocks while also owning options, money markets,and mutual funds; 4) they make an average trade of $15, as compared to$4, for the typical online investor; and 5) they pay lower transactionfees averaging $1 per trade as compared to the typical $25 per trade paidby online investors. Rutledge (1999, p. The economic boom has been powered by the cyber boom butit is very possible that some of these paper profits have the potential togo up in smoke when and if the bull market finally flames out. Mosser, M. It alsoreflects instrument design techniques presented by Davis (1996). A growth in the sales of PCs of about 14to 15 percent, the growth of the Internet and the introduction of Windows2 and new communications hardware are given as the factors that willfuel this growth. The virtual dementia of the stock market creates millionairesovernight when high tech companies elect to go public. Elyssa Yoon-Jung Lee (1999) has provided an overview of theperformance of stocks in these sectors. In 1999, the Dow Jones Industrials gained 16.1 percent overall.California Technology Stock Letter (CTSL) recommended technology stocksthat more than doubled that performance, gaining 39.1 percent (Boyd, p.31). Nicolova, R. (1999). It has since rebounded to 4 and most ofthe other Net stocks are off the bottom as well. Arandom sampling of no less than 1 individuals in each group will beconstructed using the "nth number" methodology of randomization. Money, 28(7),115 -12 . Bears waving red flag: Bulls looking other way."Futures: News, Analysis, & Strategies for Futures, Options and DerivativesTraders, 28(8), 28 -33. Online Brokerage Market.www.nfow.com. The Bull is somewhat worried. First Tennessee's move to NYSE expected to controlvolatility. In early August, at its low, Amazom.com Inc. It is even possible that taking the air out ofthe Net bubble will make the entire market sustainable. The real winners in day trading are companies like MomentumSecurities, a professional day trading group (Investor Relations Business,1999). Internet stocks benefited from the bullmarket partly because the demand for them far outweighed the supply. NASDAQ is ideal for daytraders because it is essentially a computer that connects to dealerterminals, enabling people to buy and sell via a computer. Business Courier, 16(7), 7. (2 ). Please indicate, using percentages, which of the following investmentsor stocks you now hold in your portfolio:Technology offerings____Internet companies______Other IPOs___Blue Chips____Industrials___Futures__Options____Money Markets___Mutuals___T-Bills____Bonds___ Please respond to the following items with a scale to indicate theirimportance or your level of agreement with theitem. This study indicated that of theday traders who were polled, only 21 percent have, at one point or another,bought and sold a stock in a single day. The Internet and interest rates. Newsweek,134(1), 36-44. At thesame time, Vickers (1999) states that the S&P 5 index stock, on average,is still 18 percent off its 52-week high and the average Nasdaq stock isdown 33 percent. Fairfield Business Journal, 38(31), 7. In general, the literature indicates that day trading, though perhaps notas extensive or widely practiced as is often asserted, is directly linkedto market volatility (Fairfield County Business News, 1999; Meyer, 1999). However, it is highlyunlikely that this frenzy will endure forever. In essence, the literaturesuggests that true day traders do not create market volatility, but tend tocapitalize upon that validity (Useem, 1999).Research Design The proposed research will consist of a Stratified Random Sampling(SRS) to be conducted via administration of a survey instrument designed bythe researcher. Quickel, S.P. The research problem to be addressedin the proposed study is an outgrowth of concerns regarding thesevariables. NFO Interactive (www.nfow.com, 2 )states that true day traders may not be responsible for moving markets, butthey do generate a disproportionate level of revenue for the onlinebrokerage companies. Internet stocks are still trading at higherP/E ratios than any other sector of the market and they, like othertechnology issues, are very sensitive to fluctuations in the interestrates. (1999). If you do use a broker, which of the following investments do you makewith a broker: Stocks___Money Market Funds___Currency___Mutuals___Options___Bonds____REITS___Treasury Certificates___9. (1996). The inquiry will ask potential respondents toparticipate in the study and to identify in broad parameters their typicalone-time investment level in dollars. Day traders look for companies thatalready exhibit a highly volatile stock price and their purchases canfurther exacerbate that volatility. McGinn (1999) calls this new class of worker, the"entrepreneurial man." This younger worker begins to pursue his or herdream of success and wealth while still in college, often day trading tocreate an initial capital fund and often using these funds to createInternet-based companies. NFO Interactve reported that day traders at all tradelevels are heavily involved in technology and Internet company stockpurchases, regardless of the level of trading or length of holdings beforesale (www.nfow.com, 2 ). No. But the SEC does have theauthority to examine and enforce margin issues, arranging loans amongcustomers to meet margin calls, and collecting assets from others to trade. For Net companies thathad hoped to use high-price stock to buy other companies and rapidly expandmarket share, the gyrations of the summer of 1999 were quite devastating.However, Business Week (1999, p. McGinn, D. The survey instrument, which follows was developed after thepreliminary review of literature contained in this proposal and analysis ofthe survey conducted by NFO Interactive and Spectrem Group. McEachern, C. In a previous study by NFO Interactiveand the Spectrem Group (www.nfow.com, 2 ), these variables were found tobe significantly differentiated with respect to the independent variabledescribed above. Yoon-Jung. The profits are quick and new millionaires arespringing up like dandelions in the summer. If we're lucky, we got off easy." In this context,Investor Relations Business (1999) reported that technology sector firmsregard day traders and their tendency to buy and then quickly sell off astock as the critical factor causing volatility in this sector. Over the past five years, according to Mike Mosser (1999), the NASDAQhas "led the charge in terms of percentage gain among the indexes, followedby the Standard and Poor's 5 and the Dow with the Russell 2 laggingbehind. Day traders thrive on the market's volatility,hoping to cash in on dramatic changes in stock prices during the tradingday. 312) states that this leads to a bizarre "rhythmin the market and an interesting opportunity for tech stock investors whopay attention to the economy. References Anonymous. Stock options in high tech companies have beenthe basis upon which Americans have gotten rich. Significantly, Vickers (1999) recently reported in Business Weekthat most industry analysts believe the incredible bull market willcontinue to drift upward because the internal corrections (reflected inlows for some NYSE issues) peaked in late summer 1999. Nominal ordichotomous measurements via contingency correlation will be created, tocompare the independent and dependent variables for each group.Contingency correlation provides a summary indicator of the strength ofrelationship between variables. Using a rating scale will allow point-biserialcorrelation of the nominal or dichotomous variables. (1999). Most day traders make relatively small buy and sell orders, butthese small amounts of stock add up quickly. The first consistsof 4, full-time professionals and the second, a portion of the country's7.5 million individual investors. Someindustry analysts and regulatory agencies are questioning this effect;McEachern (1999) reported that the Securities and Exchange Commission (SEC)cannot tell any individual what can or cannot be traded using their ownmoney or how quickly or slowly they can trade. 4. However, Bill Day (1999) believes that the vast majority ofindividuals characterized as day traders are not true day traders. Davis, D. Davis (1996) states that a summary valuefor assessing the strength of relationship in a 2x2 crosstabulation tableis the phi coefficient which indexes the strength of association betweencategorical variables. !#@%* day traders: Feed 'em or freeze'em?Fortune, 139(1 ), 318-32 . Day traders few and far between, yetimpact is tremendous. Theresearch design reflects what Davis (1996) calls a static-group comparisonin which two groups are chosen for the study with respect to a singleindependent variable. Meyer, M. (1999). Average capital used for investment funds:_______5. Day traders create market volatility.14. An inquiry in theform of e-mail will be sent to AOL subscribers who have been previouslyidentified by AOL as using online investing services, participating ininvestment or market related newsgroups, chat rooms, and other onlineinvesting activity. Wall Street &Technology, 17(1 ), 74. Compaq -4 .2 - $25.69Pfizer -12.9 43.4 $113.19Cisco Systems 16.5 1 .4 $115.44Among the best-performing stocks identified by Lee (1999) are LCA-Vision,IPC Info. Day traderscan set up shop with a computer and an average capital fund of $3 , to$7 , . By1989, this figure had increased to 3.2 percent and rose again to 4. (1999). Mostinvestors tend not to buy and sell in rapid-fire order and do notcapitalize upon the high degree of split-second volatility that the trueday trader uses to leverage profitability. Age:_____ (in years)3. Data will bepresented in appropriate tables, charts, and figures. Many strategistsbelieve that a lack of inflationary pressure, a gradual improvement in theglobal economic order (and especially with respect to Asia and LatinAmerica), and strong third- and fourth-quarter 1999 U.S. return P/E PriceLucent Technologies 2.6 49.4 $58.5 Microsoft -2.5 62.6 $76.88General Electric 8.9 36.9 $1 5.94AT&T 3.4 27. Day traders appear to be split into two groups. In July 1999, these stocksreached a high that was followed by the first great Internet sell-off inAugust. Brokers are becoming less and less necessary for investmentactivity.19. These includethe volatility of the current bull market, the stock issues that arecontributing to this volatility, and the demographics and roles of daytraders. A role of the dice. These strata will consist of a group of potentialsubjects investing at levels of $5, and above or $5, and below. Randomization ensures a degree of reliability andvalidity and further permits generalization of results. Useem, J. Investing solely in Internet stocksstill a risky venture. Itwould also assist in development of an accurate picture of the impact ofday traders on market volatility, expressed in trade volume and level aswell as length of time a stock is held before sale.Review of the Literature Several related issues are addressed in the literature. Anonymous. On Wall Street,9(3), 91 -93. The dependent variables are trade levels/volumes expressed in dollarsper trade and portfolio contents. Business Journal: Serving Jacksonville& Northeast Florida, 15(2), 3-5. CTSL is predicting a flat year for corporate growth earnings, asdeflation depresses prices and pinches profit margins, and also calling fortechnology stocks o do very well. Business Week (Mandel, 1999) reported in September of 1999 that thesummer was a "wild time" for Internet stocks. According to Jeff Camarda, a certified financialplanner, technology stocks are appropriate as a component in any investor'sportfolio provided the size of the component suits the individual'sinvestor risk tolerance and the allocation to technology is welldiversified. Average dollar level per trade:$_____________6. NFO Worldwide & Spectrem Group. If you use a broker, please identify the frequency: Always___Sometimes____8. 3645,78.----------------------- 18 (1999). (1999). Introduction Background of the Problem As 1999 came to an end, the U.S. In SRS, the target population is separated intononoverlapping groups of elements or strata and a random sample is selectedfrom each stratum. Daniel McGinn (1999)has also pointed out that the market is creating a growing number ofhouseholds with net worth over $1 million in the United States. (1999). (1999). However, further exploration ofthese issues is valuable in verifying the results of the earlier study. The impact of day trading on market volatility is overestimated.15. Cravey, E. When a biggrowth number is released, Alan Greenspan begins to talk about irrationalexuberance and frightens bond market investors into selling long-termbonds. By the numbers. Should the bubble burst -and history suggests that bubbles always do burst - it is probable that anumber of paper millionaires will crowd the unemployment offices in searchof work. Camarda describes this as a speculative bubble based onexpectations of future growth. Securities and ExchangeCommission chairman Arthur Levitt has cautioned investors that onlineinvesting or purchasing high tech issues may make them rich, but also thatit may often bankrupt them. Identification of Variables The independent variable to examine in the proposed study is lengthof time a stock is held. Meyer (1999) has stated that day traders move quickly in and out ofstocks, hoping to profit from split second variations in price. stock market posted another bull runcharacterized by large capitalization, with technology stocks leading theway. Systems, Netopia, Summit Technology, E*Trade, Amazon.Com,Metromedia Fiber Net, Yahoo, Dell Computer, MindSpring, AOL, QLogic, Exciteand Jabil Circuit. Butthat problem will be reversed through new initial public offerings (IPOs)and from additional secondary offerings from existing companies. The specific tasks which must be performed to test the hypotheses andobtain an answer to the research question are: 1) construction of theinquiry letter and survey instrument; 2) initial e-mail contact ofpotential subjects and random selection of participants after initialagreements to participate are received; 3) e-mailing the survey instrumentto identified participants and receipt of completed forms; 4) statisticalanalysis of data; 5) an ongoing review of additional literature; and 6)creation of appropriate tables, charts, and figures and development of thefinal report. Day traders, unlike traditional investors who rely on the market'slong-term capacity to produce returns, buy stocks and sell them by day'send (Nicolova, 1999). Day trading can artificially inflate or deflate the value of a stock. How long do you typically hold a stock you have purchased: 1 day or less____1 to 7 days___1 to 4 weeks___Indefinitely__1 . The technology boom...has created an economythat has confounded the Fed." Typically, the Fed uses the Phillips Curvemodel and believes that more growth equals higher inflation. Though Net stocks have now recovered from their lows, someindustry analysts are uncertain as to how these stocks will eventually playout. Whilemillions play the market part-time (often from home), it is estimated thatno more than 15, day traders earn a living in the process. The basic skills of day trading are easy to master.18. 5 percent. Lacy, S. Traditional investors and brokers worry that the activities of thesetraders adds volatility to an increasingly capricious market. However, asMosser (1999) has noted, some industry analysts believe that this sectorcould suffer from too much supply. Average Americans who have elected to follow the traditional route tosuccess are becoming frustrated by the failure of this strategy to generatethe kind of benefits that Internet start-up firms and their owners arerealizing overnight. Day traders flockto IPO stocks and generate almost immediate profits. Phrased as a research question, the problem addressed in theproposed study is: To what degree and at what volume level do day traders typically buy and sell stocks in a single day, thus fostering day-to-day (as opposed to longer-term) market fluctuations?NFO Interaction and the Spectrem Group, which analyzed the behaviors of daytraders (Fairfield County Business News 1999), developed this question withrespect to results of a research survey. It is to these stocks that day traders are drawn. Survey Instrument Please provide the basic demographic information requested below.1. Data collected from the survey (presented below) will be analyzedusing both descriptive and simple inferential statistical procedures.Crosstabulations for each of the variables will be developed. Technology stocks and Internet companies are ideal forfast profit maximization.17. Easy? The five digit Dow has created a new group of affluent Americans(most of whom function as day traders) who have made their money oninvesting in high tech stocks and generated tax revenues that have helpedto fund the operation of governments at all levels. Some industry analysts also point to the role played by "day traders"- stock market players who typically do not go through a broker and makeseveral transactions in a day - in fostering market volatility (Lacy,1999). Eric Cravey (1999) profiled Internet investors and commented that anumber of brokers now believe that investing solely in Internet-basedstocks is risky at best. In 1962,only 1.5 percent of all American households had this level of assets. Day, B. Davis (1996) identifies this method as useful when itis believed that certain strata differ from others on one or more importantcharacteristics and it is these differences which are critical in testingthe research hypotheses discussed above. (1999). Based on responses received to the inquiry, two strata of investorswill be constructed. was down 6 percent from its 52 week high, E*Trade Group was down 67 percent,MarketWatch.com down 79 percent, TheStreet.com 72 percent, and Yahoo! The most widely held stock thatare of interest herein identified in the following chart: Most Widely Held StocksCompany %3-mo. corporate earningsare the critical factors likely to facilitate a continued bull run. (1999). Do you: only trade yourself____Use a broker___ 71. Subjects will be drawn from apopulation of online investors contacted via America OnLine (AOL), which isa major locus of online investing (www.nfow.com, 2 ). What seems likely to emerge in the first-quarter of 2 is a "cautious bull market." Technology stocks are expected to lead thisnew market as they have led the market in 1999, and it is these stocks thatday traders are most often associated with (Meyer, 1999). Years trading:____Years trading online:____4. Rutledge, J. True day traders buy and sell a stock in a day or less.12. (1999). 42) states that the Net bubble deflatedsmoothly: "had it popped, it could have brought down the entire market,and perhaps the economy....For the economy as a whole, the crash in Netstocks was a plus. These stocks are new and have not been testedas have more traditional investment vehicles. Average Number of trades: per day____per week____per month___7. Day-Trading drew broker from KansasCity. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.