There’s been this meme circulating that 70% of all trading volume on the exchanges is HFT, and that the average holding period for stocks is 11 seconds. Punch into Google “Average Stock Holding Period: 11 Seconds” and you get 850,000 results.
The problem is, none of these “data points” are backed up with real data. I set about tracking down where this meme came from.
I had first read this number in an interview with Peter Cohan in Marketplace. I tagged Peter, and he gave me Bloomberg as the source for the 70%. It turns out that the Bloomberg article in question quotes Raymond James analyst Patrick O’Shaughnessy. He appears to made a guess that “High-frequency trading may accounts for 70 percent of share volume in the U.S.” But that “may” mean it is a only a guess, not backed up with data. Somehow, that 70% estimate somehow morphed into a fact. I’ll reach out to O’Shaughnessy to see what he says.
As to the 11 seconds holding period, here is the NYT:
“The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.”
This 11 seconds data point is 1) a rough number, 2) without much supporting data; 3) spitballed to a group of students, 4) for one small HFT firm.
Other people have looked at holding periods and came up with far longer holds. David Hunkar recently wrote:
“Based on the NYSE index data, the mean duration of holding period by US investors was around 7 years in 1940. This stayed the same for the next 35 years. The average holding period had fallen to under 2 years by the time of the 1987 crash. By the turn of the century it had fallen to below one year. It was around 7 months by 2007.
Similar pattern exists in the UK also as shown in the chart above. There the average duration has fallen from around 5 years in the mid-1960s to less than 7.5 months in 2007.
Over the past 15 years even in international equity markets, holding periods have fallen. The Chinese market was red hot until few months ago. However the duration for the Shanghai stock market index is close to just 6 months.This shows that Chinese investors do not have a long term horizon.”
The best data I’ve tracked down confirms that range of holding times.
Conclusion: The 11 second number is wrong. There is no data supporting that. Estimates of HFT of 70% of trade volume are just that — estimates — and we have no evidenciary proof or data that HFT trade volumes are 70% . . .
Update: O’Shaughnessy writes back “That’s an estimate I put together by speaking with various industry”
He adds: “HFTs are the new market makers, which puts them on essentially one side of all exchange trading. Exchange trading is around 70% of all trading activity, so that gets them to 35% share. Then you have a lot of exchange trades where the hft algos trade against each other, plus hfts do a lot of dark pool trading too. 70% may be a bit high but I would wager it is easily 50%.”
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