If you’re asked to imagine a trading floor during a market meltdown, images of umpteen bankers running amok may spring to mind.
But as the summer holidays hit, many trading floors are relatively empty. Senior financiers are watching the current market crash from their villas in the south of France or from yachts in the Med.
August is a time of executive exodus in the City and the lack of senior decision makers helps explain why swings in prices have been so extreme.
Although many insist they are still working from their sun loungers, history suggests they may not be keeping as close an eye on events as they do the rest of the year.
“It seems like every holiday I have is disrupted,” says Neil Shearing at Capital Economics. He reels off a list of previous summer crunches, including the eurozone crisis in 2011 and the “taper tantrum” a year later when the Federal Reserve threatened to reduce stimulus.
“It is partly about thin trading, and the way the market infrastructure has evolved over the past two decades – there is a lot more algo trading, so these trends seem to feed off each other, and you get more rapid dislocation before stop losses are eventually triggered.”
In other words, many of the market moves in the summer months are driven by short-sighted machines while their human architects, who may be able to make more measured judgments, are on the beach.
These “algo” – algorithmic – trading programmes are often shifting shares among themselves in the summer months.
Fewer fund managers and banks tend to buy and sell in August, draining the so-called “liquidity” of buyers and sellers from the market. Last year, for example, there were 498,315 trades on average each day on the London Stock Exchange, compared to 685,335 in March – a 27pc drop.
There is an old adage in the City: sell in May and go away. The phrase refers to the practice of banking stock gains in the spring before the summer market slump sets in, then setting off on holiday. Most then dive back into the market in September.
“Because of holidays, people are away and aren’t making as many decisions to buy something new,” says one City financier speaking from the south of France. “You will get more algos trading.”
Many of these computer strategies are “trend following,” which means if the market trend is to sell stocks they will also pile in and sell, fuelling the crash.
You need only look at current events to see the results: an index reflecting global stock markets slumped by 3.3pc on Monday, the fourth-steepest August fall on record and the 40th biggest decline ever.