Friday, November 07, 2008

Late Day Rallies and Crashes: Why Do They Happen?

Have you noticed how in volatile times, it is very often that the stock market swings wildly and reverses trend during the last hour of trading? Sometimes, just when it looks like you are going to get away with a slight gain for the day, 3:00 PM EST comes along and a dramatic stampede for the exits begins in the market. 

I have always wondered why this happens, and last week I found this article on Kiplinger that addresses this question. It appears that this is not a coincidence or illusion but an actual phenomenon that is caused by several factors including the way mutual funds trade and how individual investors are required to handle margin calls.

It's an interesting read.

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