“For more mature companies, a stock will move based on how well a company’s earnings or revenue come in, relative to expectations,” Rosenbluth said.
While smaller companies may have no earnings to report, which may be more typical of small pharmaceutical or biotechnology names, these companies may have more important announcements, like early-stage drug developments or new products.
Recent studies have also pointed to greater herd mentality or lock-step moves in the market. As the popularity of index-based ETFs grows, correlation between individual securities in sectors are also on the rise. Many index-based ETFs employ sampling techniques or carve out specific areas of a broader market to provide a general investment theme, and with more investors utilizing the ETF investment vehicle, observers have pointed out that correlation among ETFs’ underlying securities have increased. [Increased Index ETF Usage Promotes Stock Correlation Across the Board]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.