Big Gap Based Movement in US and Other Developed markets - Is it really a good thing?

We often witness significant movements in stocks only through gaps in US markets and if I’m not wrong, even in other western markets.

Yesterday, We have seen 35-39% fall in a big stock like Netflix. These types of moves are pretty common. Even Meta (FB) fell 7-8% yesterday (without any trigger except for netflix related sentiment)

Can we imagine having such volatility in nifty stocks. I doubt if we can manage it even for few weeks.

Are the developed markets really developed ? When the major part of the move happens after market hours, I wonder if it encourages more of price discovery or encourages speculation.

such volatility shouldn’t ideally happen if liquidity in the markt is abundant. wonder how such violent moves happen even after having abundant liquidity in US Markets.

And as we develop economy and markets wise going forward - Should the markets get more volatile like USA or be more stable like ours ?

Keeping aside some of their below par decisions, I think SEBI and even the exchanges must be applauded for all the measures keeping our markets stable when it comes to overall market movement.

What measures , according to you , should be taken by which our market functioning can improve going forward ?

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If there is overnight news that affects the stock, price should adjust accordingly. Providing liquidity at ‘wrong’ prices does not make it better for price discovery obviously.

We have had violent moves in past, perhaps not via gap which might just be luck. But ZEEL had fallen very nicely few years back. Satyam apparently lost a lot too although i dont have chart. 7-8% moves are quite common. But yes very large gaps seem to happen in US stocks and not so much here.

Dunno whether SEBI has anything to do with it, FNO stocks don’t have hard limits, but open might be restricted initially. And circuit filters, while perhaps necessary against wrong spikes, only lead to no liquidity for right spikes until price gets to ‘right’ area.

@YS_Bhargav You have to remember that NSE is the largest derivatives Exchange by contracts for a few years now and also in top 3-4 in Cash mkt so Nifty is not some chota-mota type exch :smiley:

Yes, in mkt cap terms its ranked lower but liquidity is more volume related than mkt cap related.

On top of that, NSE listing has pretty stringent rules, thats why they are like under 2K (~1600-1700). Some other Exch may have even 3-4X more listed entities.
F&O stocks numbers are limited, and the count also slashed in the last couple of years. Many laggards were booted out.


My inputs-

  1. Circuit is there in India so if some bad news comes the stock will just hit lower circuit and thats it. Market is not gonna crash heavily. Very soon the company will make some announcement and hence stock rebounds or atleast doesn’t follow free fall. (Income tax discovered that hero motorcorp of making 1000Crore rupees fraud, to put in terms its 30% of company’s annual profit; then what happened. Stock fell one day and in evening it just denied those claims, now everything is back to normal and everybody has forgotten it)

  2. If the company is good then Investors are always ready to grab the opportunity to buying low. (I hope everybody remembers nsetle incident)

  3. Since NASDAQ is skewed towards tech stocks (50%+ Tech Stocks) when bad news comes the fall is bigger because there is no underlying value for those stocks and valuations are given based on future projections. If the future itself is not-sustainable the price falls very much whereas if it had been some typical asset class sector then there would be assets backing up the stock and hence even if there is no future the stock still carries some value.

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Restricts free-market economy.

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…and thus avoiding putting individuals in a Prisoner’s Dilemma,
thereby avoiding a Tragedy of Commons,…

…which is a good thing! :slight_smile:

Free-Market isn’t always in the best interests of the individuals (nor the whole).
Especially when a significant non-uniform distribution of knowledge/power
is known to exist within the various participants in the market.

Critics of a free market economy claim the following disadvantages to this system:

  • A competitive environment creates an atmosphere of survival of the fittest.
    This causes many businesses to disregard the safety of the general public to increase the bottom line.

  • Wealth is not distributed equally.
    A small percentage of society has the wealth while the majority lives in poverty.

  • There is no economic stability because greed and overproduction cause the economy to have wild swings ranging from times of robust growth to cataclysmic recessions.

  • Assumptions required for free markets to operate well are inconsistent with reality such as the myth of perfect and symmetric information, rational actors, and costless transactions.

[ Source ]

As with most things,
neither a complete free-market nor a fully-regulated market are perfect.
A moderate combination of both is required.
Ideally the balance changing from time to time.