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Bloopers & Blunders:
Rationalizing The Rise In Small-Cap Stock Prices

Quotation

Small-capitalization stocks climbed Friday as buying related to the so-called "triple witching" on the broader market sparked a rebound in the technology sector and ended a six-day sell-off.

. . .

"It's been a rough two or three weeks," said Robert Antolini, head of over-the-counter trading at Donaldson Lufkin & Jenrette Securities. "But people decided that it was overdone, and that many stocks were ridiculously cheap." (WSJ, June 22, 1996)

Analysis

The first paragraph attributes the climb to "triple-witching." However, it never explains why the effect was only felt on small-cap stocks. The impact of "triple witching" has been associated with increases in volatility of the market as investors try to scramble whether to, say, buy a contract (options or futures) similar to their current one (i.e., roll-over the existing contract) or get into new ones. Such an argument, however, should have an impact on large-cap stocks, not small-cap, as option contracts are not available for the "small" companies.

The second paragraph that states that the increase in prices is because they were "ridiculously cheap," which is a different argument than the first.

Other potential reasons, not even mentioned in this article, include the fact that there is a lot of "window dressing" going on by money managers toward the end of the quarter. Moreover, there tends to be additional buying activity at the end of June associated with new companies being added to the Russell 2000 index. See p. 5 for more information on this topic.