European Stocks Face Wild Ride: Hedge Funds' Growing Influence Unveiled

European companies are experiencing significant volatility in share prices during earnings reports, driven largely by hedge funds' increasing dominance. A Reuters analysis shows that stock movements on earnings days have surged, posing challenges for market stability. Experts warn that this trend could deter long-term investors and complicate corporate fundraising efforts.

European companies are encountering unprecedented volatility in their share prices during earnings reports, according to a comprehensive Reuters analysis. The study reveals that these fluctuations have increased by 18% compared to eight years ago, driven primarily by the growing influence of hedge funds.

Traders and investors interviewed by Reuters highlighted that short-term money, primarily from hedge funds, is now steering the market. This trend is amplified by changes in market structure and the decline of traditional buy-and-hold investors in Europe. Regulations post-Brexit have further fragmented the market, enhancing this volatility.

Data backed by academic experts shows that this increased volatility can lead to broader market inefficiencies and higher investor risks. Such conditions may ultimately deter long-term investors and make it more expensive for companies to raise funds. The growing presence of multi-strategy hedge funds is particularly noted for driving this trend.

(With inputs from agencies.)