‘Investor jitters cause equity volatility’: Elston

‘Investor jitters cause equity volatility’: Elston

Investors have contributed to the volatility of equity markets by reacting nervously to index developments, a specialist has claimed.

In a five-page letter to investors, Peter Elston, chief investment officer for Seneca Investment Managers, claimed that investor overreactions to market movements had contributed to volatility.

Citing analysis of the S&P 500 index, he said there had been seven equity bear markets in the past 45 years but only one of these appeared to be driven by rational investor behaviour.

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He said: “The only bear market that was remotely justified on the basis of what happened to dividends was the most recent one in 2008-9. All the others saw no corresponding decline in dividends.”

He added that equity investors tended to demand a high return because of equity market volatility, but said: “It is their own behaviour, not that of the underlying dividends, that causes the volatility.”

Adviser view

Steven Pyne, a partner at London-based Holden and Partners, said: “Investors sometimes try to be a bit too clever and can be too skittish in reacting to the markets; but we would advise them to hang in there. Investment is a long-term game.”