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Info re: the Composition of Financial Markets

Nathan Wailes

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Is anyone aware of any studies/books that give an in-depth description of the composition of the various financial markets out there?  I want to know as much as possible about who is participating in these markets.


Here's an example of what I'm looking for:

Over Thanksgiving dinner I spoke with a friend of my family who I'd known for many years, and when the topic of the conversation went to finance she mentioned that she had used several thousand dollars to buy stock in various companies she thought highly of, like Starbucks.  This woman is a retired vocal instructor; she has no expertise whatsoever in the stock market.  A month or two later I was talking to a friend of mine and mentioned this story, and he mentioned that he had dabbled in stocks at one point himself; he also has no training whatsoever in finance.  My question is, "How many people like this are there out in the world, how much money are they putting into the stock market, and what else can I know about their demographic info?"  I would like in-depth statistics on where these people are, what their education level is, how much they earn, etc.


I was hoping there would be some kind of academic study that would have charts showing the percentage of the buying and selling that is being done by different groups (average Americans, individual professional investors, pensions, endowments, banks, etc.), and trends, but I haven't been able to find anything like that.


Anyone have any advice?  Know anyone who might know what direction to start looking in?




Nathan Wailes


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I don't know of any study but to some extent it is impossible to know. Maybe contact or research big retail brokerages, like E*Trade. They have good info on how much their retail investors are trading, withdrawing or depositing money, etc...


As a general rule, the harder the market to invest in the less of this type of dumb money it will possess. So the stock market will have much more of these types of investors than the bond market.


I understand what you're getting at, the markets with the most undereducated dumb money will be the most inefficient, but I don't think that can be the case at such a macro level. Just one smart guy running a big, multi billion dollar hedge fund can offset tens of thousands of dumb retail investors and correct any inefficiency pretty quickly. Markets are huge, and for a huge inefficiency to exist on either side (overvalued or undervalued) I think it takes both institutional and retail investor irrationality. For example, the tech bubble had a very large amount of retail investors, or everyday people uneducated about investing, participating. But institutional investors were participating as well and would of corrected the bubble before it happened had they been rational.


It's difficult too, because really uneducated investors can invest in different ways. They can buy individual stocks, or day trade currencies, buy mutual funds, buy ETF's, etc... All those are really easy and just require opening an online brokerage account. So looking at what % of the market is mutual funds, for example, doesn't tell you much because you don't know who is behind the assets of those mutual funds.


In individual stocks a large amount of dumb money like you speak of can really make a difference, but in entire markets, I doubt it.

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Well, I've been tipped off by one person to check out the Fed's "Flow of Funds" report, but I don't think that's exactly what I'm looking for, although it may be a piece of it. I'm beginning to suspect that what I'm looking for doesn't actually exist.


Thanks for the tip re: contacting big brokerages.  I doubt they'd give me the time of day but I'll search for research that was done in conjunction with them.


The reason I need the info: I want to become a hedge fund manager and so it's imperative that I understand exactly how these markets are working. If 50% of the activity in the stock market is a result of mom-and-pop investors, and something happens in the US to scare these people away from stocks, that would be a disastrous situation (although it's admittedly an extreme example). I need to prepare for stuff like that.


Anyone else have any advice? I'm looking for some kind of report ~100 pages (more or less) that will give me an overview of the composition of the equity/bond/futures/CDS/etc. markets. I want to know who is participating in these markets, how often they're participating, why they're participating, etc. Basic stuff.

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