Not coincidentally, the number of investment chat rooms has ballooned, contributing to uncertainty among investors due to the number of divergent opinions being put forth by individuals claiming to be 'independent analysts'. The hypothesis that the growing online trading phenomenon is contributing to increased market volatility is a difficult one to prove or disprove. There are, however, a number of interesting observations that can be made in support of this thesis. Admittedly, this in itself is not a convincing argument, since market volatility would be expected to increase at such a late stage in a prolonged bull market as investors become increasingly concerned about the inevitable correction. Another interesting set of statistics relates to institutional holdings of various equity groups.
Institutional ownership is an indicator of where the so-called 'smart money' is being invested.
In other words, the most volatile stocks on the market are currently being driven primarily by retail investors. Online brokerage firms, by definition, tend to attract investors with some familiarity with the Internet, and this Internet bias can be readily apparent when visiting their sites. Of course, finding a statistically significant relationship between the number of online investors and increasing market volatility would require a much more rigorous analysis that controls for other sources of volatility in the market, but it's a compelling theory nonetheless. We, not surprisingly, have a different view. We believe there is value in professional advice and independent research, and that there will always be a market for these value-added services.