If you've spent a lot of time hanging around your broker's office or reading financial publications, you may have heard of a phenomenon known as the summer doldrums.
What exactly are the summer doldrums? Simply put, traders, brokers, money managers, and investment analysts are human. On warm, sunny days, many would rather be heading to the Hamptons to catch up with friends, or laying by the pool sipping a lemonade. If they aren't in the office, that means they aren't as likely to buy and sell stocks (would you be thinking about Home Depot, Berkshire Hathaway, or Coca-Cola while grilling steaks and playing with the kids?).
The reduced volume results in greater volatility because the transactions that are completed are going to have a bigger impression on the price of the stock. If you wanted to sell 1,000 shares of a thinly traded bank stock in North Carolina, the order may not have a huge effect on the equity's price if the company trades an average of 100,000 shares each day. If, however, trading volume falls 30% in the summer to 70,000, your order is going to have a more powerful influence on the price of the stock by pressuring it to fall as you sell your holdings.
In Wall Street lore, the summer doldrums officially end after labor day in September, when hedge fund managers, mutual fund gurus, and stock pickers head back to work and are forced inside as their kids return to school.
