The behavior of stockbrokers, bond traders and foreign exchange dealers, are often compared to that of ants. These young (and some old) professionals tend to be herd
driven. These professionals imitate others in their trading inclinations in the markets. Dealers are then copycats. They cannot innovate; they can only follow (the trend).
The 'ant behavior' among dealers now could be cited in efforts to wind down euro assets and to build up dollar assets. ( In anticipation of the rainy day of the US interest rates moving up) The traffic of dealers to pile into dollars is more than to pile into euro.
In Mumbai Stock Exchange the ant behavior is quite pronounced. It was most visible in recent days: brokers kept on buying in hope even when all over the globe they sold on Greece; and then came the news of corporate espionage. Dealers suddenly left Mumbai stock exchange indices; they let it down once news came of a blue chip manager being arrested for corporate espionage. Some leader ant sold, and all the others followed. This looking away lasted 2 days and today the ant leader has indoctrinated the need for a reform laden budget and the herd has taken up the stock market by 200 points. Nothing has changed on the fundamentals.
The
new path is quickly tracked down by the
other ants. A first
entrant is followed by others. Ants pick up ‘hot tips’ and chase the
pioneer. People tend to move in to hot
tips because other dealers did that .
Where is the rationality of investment? You are only as rational as the leader ant is. What if he is a manipulator a la Harshad Mehta or Nick Leeson?
(From a forthcoming book by the author)
Without any risk or responsibility.
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