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Trading Stock Around the Clock?
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15263 |
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Section : |
CURRENT ISSUES
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8 / 1989 |
2,890 Words |
| Author
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William C. Freund
William C. Freund is professor of economics and director of
the Center for the Study of Equity Markets at Pace University. |
There is really nothing novel about the notion that the world has shrunk, united by modern technology and satellite communication. After all, Wendell Willkie wrote his book One World over forty years ago.
In the world of finance, the concept of one world is rapidly becoming a reality. Each morning, U.S. newscasters report how the stock market closed in Tokyo and opened in London. Morning breakfast would not be complete without a report on the international exchange rate for the U.S. dollar and the price of gold in various international financial centers.
Investors in stocks were well in the way to becoming world citizens when the October 1987 crash struck. According to the U.S. Treasury, foreigners bought and sold $278 billion in U.S. stocks in 1986 and $360 billion between January and October 1987. Similarly, U.S. investors traded over $100 billion in foreign stocks in 1986 and $142 billion in the first nine months of 1987.
Most of this trading was done by institutional investors who dominate stock markets around the world--insurance companies, pension funds, mutual funds, and banks. By trading across their own borders, they hope to achieve higher returns or lesser risks in their portfolios.
The 1987 stock market crash, which started in the United States and spread across world markets at lightning speed, set back the internationalization of stock trading. As institutions licked their wounds, they cut back their trading not only domestically but internationally. The internationalization of stock trading, however, has suffered only a
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