Stocks swing twice as much, intra-day!

Lokeshwarri S. K. BL Research Bureau | Updated on February 20, 2011


It may have given investors a few heart-stopping moments, but was probably a great opportunity for day-traders. From the start of this year, stock prices have taken to nose-diving steeply or rebounding suddenly with equal vigour, all within the span of a single trading day. These wild swings in stock prices are a manifestation of increased intra-day volatility.

News correlation

A Business Line analysis of movement of Nifty within each trading session over the last six months reveals that the intra-day swings in the index were almost twice as high in the last two months compared with last August. A statistical measure of movement – the standard deviation – in index levels over 30-minute intervals was used for this analysis.

It was noticed that while the standard deviation (variation of data from the average value) was much smaller in August at 0.18 per cent, it was 80 per cent higher in January and February at 0.34 and 0.33 per cent. This means that change in Nifty every half-hour has almost doubled this year.

“Historically we have seen that whenever market is flooded with a lot of news and volumes are low, swings in stock prices are sharp as we are witnessing now,” says Mr. Siddarth Bhamre, Head – Equity Derivatives at Angel Broking.

No conviction

He said that volatility could have spiked as both FIIs and DIIs lacked a clear market view in this decline. “FIIs take significant positions in index future once they are convinced of the trend, for instance (they were) long in 2007 and short in 2008.”

In this fall from 6,300-plus levels to sub-5,200 levels, FIIs have not created any meaning-full short positions in index futures. Domestic participants are also not committing fresh capital.”

Stocks change more

If we use the same measure of intra-day volatility on specific stocks, it is seen that the price swings in stocks were much higher than in the index. Within stocks, the more liquid ones such as Reliance Industries have lower intra-day volatility when compared with stocks such as Tata Steel that have relatively lower liquidity.

Another trend that investors will find useful is that stocks belonging to sectors in news tend to show greater swings within a trading session. For instance, Bharti Airtel suffered due to the negative sentiment prevailing towards telecom stocks and witnessed swings of around 0.70 per cent in February.

Volatility in SBI spiked to 0.57 per cent in November when Public Sector Bank stocks came under a cloud following officials of some banks getting embroiled in graft charges.

“In such markets, the investor has to show courage to remain invested and wisdom in selecting the stocks.” says Mr Bhamre. “In these uncertain times, sticking to large-caps is prudent because liquidity will first return to these counters.”

Published on February 19, 2011

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