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Why do stocks tend to trade at high volumes at the end of (or start) the trading day?
The shift to trading at the close began in 2008. Traders did not want to be caught off guard by surprise news and there was a lot of volatility during the financial crisis, so they would close their position in the evening. Thats how it began. There are two reasons why it sticks around. First, there has been an increase usage of index funds or passive funds. These funds tend to update their positions at the end of the day. From the WSJ: Another factor behind the shift has been the proliferation of passively managed investments, such as index funds. These funds aim to mimic an index, like the S&P 500, by owning the shares that comprise it. Index funds don’t trade as often as active investors, but when they do, it is typically near the market close, traders say. That is because buying or selling a stock at its closing price better aligns their performance with the index they are trying to emulate. The second reason is simply that volume attracts volume. As a result of whats mentioned above, you have a shift to end of day trading, and the corrolary to that is that there is a liquidity shortage from 10am to 3pm. Thus, if you want to buy or sell a stock, but there are few buyers or sellers around, you will significant move the price when you enter your order. Obviously this does not affect retail traders, but imagine hedge funds entering or closing a billion dollar position. It can make a huge impact on price. And one way to mitigate that is to wait until there are more market participants to take the other end of your trade, just as at the end of the day. So this is a self-reinforcing trend that has begun in the markets and will likely stick around. http://www.wsj.com/articles/traders-pile-in-at-the-close-1432768080