I never said that # buyers always and everywhere # of sellers. I specifically said "if 
the market is operating" there is a buyer for every seller. It is certainly true that 
specialists on the floor of the NYSE often suspend trading in a stock when there is an 
imbalance of orders and that bids on the NASDAQ are for specific quantities of stock. 
However, has there ever been a case where orders to sell at the market in the NASDAQ 
were not executed for extended periods of time on a stock that was officially still 
trading? If not, I stand by my statement. It is actually quite remarkable that 
security markets so regularly clear completely even in the most tumultuous times. 

However, I would be the last person to claim that this means that asset markets aren't 
prone to a wide range of anomalous behavior.  - - Bill Dickens

William T. Dickens
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036
Phone: (202) 797-6113
FAX:     (202) 797-6181
AOL IM: wtdickens

>>> [EMAIL PROTECTED] 09/21/01 06:12AM >>>
Economists (and I am one) can smirk at commentators saying 'that there are
more buyers than sellers', but from a market practioners point of view, that
is certainly how it feels at times.

Financial markets have traders who maintain large stocks of whatever they
are trading.  When a piece of highly adverse news is reported, traders 'mark
down' their holdings, that is they give a considered guess as to the fall in
value of their holding due to the news and adjust prices accordingly.  Thus
prices traders are willing to bid have fallen, but there has been no market
input.  For instance, if you were holding a lot of airline stocks on 11
Sept, how much had their value declined by the time markets reopened? Yes,
such stocks would have lots of offers to sell, but there would be
comparatively wide spread and few bids to buy, moreover if you tried to take
a trader up on the bid, they would only be wiling to buy a small amount.
The rules and regulations of the market may well say, traders must make a
market, but it is often the case that the bid is only open to good customers
or for very small amounts of stock.

Two more examples.

The dot com bubble had many companies valued at absurd amounts, why?  One
reason, it was often the case that only a small amount of the companies
stock had been released for sale, the vast majority still being held by the
founders, who were locked into maintaining their holdings.  Yet the whole
company was valued at the price which a small portion of the stock was
trading.  Many people were willing to buy, but few would or could sell.  The
price went up, but the bids went unfulfilled.

Or a downside case.  My old firm, Bankers Trust, was sold to Deutsche Bank
when its stock of high yield bonds became worthless in the rush to safety
that followed the collapse of the Russian bond markets.  These high yield
bonds, all in US companies, were valued at zero if you look at the bid
price, there was no one in the market willing to buy.  There were of course
many offers to sell, but the holders of the stock were not willing to go all
the way down to the offer price (which was in this case zero).  Yet within a
couple of months (and after our Chairman had sold the company and pocketed
over $80 million in doing so) the market regained its composure and the
bonds were again in demand.  The price went down, but the offers were not
taken up.

I can fully understand the theory of making a market, and it does work over
the medium term, but significant anomalies, sometimes months long, can and
have been seen.


-----Original Message-----
Alex Tabarrok
Sent: 20 September 2001 17:40
Subject: # buyers = # sellers ?

        When the stock market goes up or down and some pundit says there were
more sellers than buyers (or vice-versa) it's common for economists to
point out that for every buyer there is a seller.  (Bill made this
argument recently and I have said this before also).  Of course the
argument is correct in the sense that someone must buy what others
sell.  The argument is generally incorrect, however, if taken to mean
that the number of buyers equals the number of sellers because it could
be the case that many buy and few sell but each seller sells more than
each buyer buys.  Which leads me to my question.  Does the number of
buyers and sellers vary with the direction of stock movements?  For
example, during a crash is it the case that a few buyers are buying a
lot and many sellers are selling a little?  Does anyone know of work
done on this question?


Dr. Alexander Tabarrok
Vice President and Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621-1428
Tel. 510-632-1366, FAX: 510-568-6040

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