Elephants in equity markets
Pinning down what sends down stock prices, sends them soaring, or moves them into a tailspin
London Business School's Dr Vania Stavrakeva was interviewed on Bloomberg's Surveillance programme talking about her working paper, 'Elephants in equity markets'. The paper, co-authored with London Business School's Professor Hélène Rey, LBS PhD student Adrien Rousset Planat, Vice President and Economist at Federal Reserve Bank Of Boston, Jenny Tang, endeavours to pin down what sends down stock prices, or sends them soaring, or moves them into a tailspin.
The “elephant” metaphor suggests that if one spots a few elephants, one might guess that there is a herd nearby. By looking at just a few funds one can see the forces (the movements of a “herd of elephants” if you will) that are moving the entire market.
These massive funds are the “elephants” that are moving the stock market. By tracking them one might get a better idea of where the whole market is headed. The study says that the elephants can shake things up, by buying and selling stocks. The authors of the paper call these “changes in portfolio weights” which are large funds deciding whether to buy or sell stock, and thereby moving stock prices.
This is not so much about new money flooding in from investors but instead concerns large funds and which stocks they are choosing. Think of this in terms of “stock picking”, or when an analyst or investor uses analysis to decide on a good stock investment. It is like stock picking but on a massive scale.
For more information on the working paper, Elephants in Equity Markets, go to the National Bureau of Economic Research here
To listen to the full interview, click here
To watch the interview on YouTube, click here
