Automation boosts market volatility, analysts say

18.08.2011
Over the past month, stock market indices have looked like a lot like a Six Flags roller coaster, with 500 point swings either way -- often on a daily basis.

The finished at 12,747 on July 21, fell to 10,719 on Aug. 10, rebounded to 11,529 on Wednesday before dropping to 10,953 on Thursday. The Nasdaq stock index has experienced a similarly erratic ride.

Some observers say automated computer systems can be blamed for at least part of the accelerated unpredictability of the markets

"[The recent] volatility is absolutely crazy," said IDC analyst David O'Dowd. "I don't know a better way to put it. We've seen record lows to record highs in a span of days, not months or years," O'Dowd said. "That's what electronic markets have done."

Up to 70% of trading volume is now consummated by computerized high-frequency trading systems, according to O'Dowd.

Dow Jones Industrial Index over the past three weeks