One of the most interesting aspects of the souring stock market has been the behavior of investors during the last half-hour of every trading day. Days that initially appear relatively stable have been going absolutely wacky as the last grains of sand find their way through the hourglass. Yo-you sessions continue to bounce and bump as the clock expires.

You can’t count on a lot with respect to the markets right now, but there is one relatively sure bet: The last half hour is going to wild.

Headline: Stocks Fold in Last Half-Hour of Trading

Headline: US Stocks Rebound, Dow Jones Flies in Last Half-Hour

Here’s the first few lines from a recent post at Weekly Technical Commentary:

A reversal, then another reversal, and one final reversal in the last half-hour. If you can’t handle this rollercoaster and adapt to the changing environment, then you shouldn’t be trading

Different days, different outcomes, same story. The end of the day is the day.

Some people are arguing that the last half-hour presents a unique buying opportunity. Warren Bevan and others in the world of day-trading see these rapid shifts as a chance to make big money with fast moves arguing, “[i]t’s a day trader’s dream here and quite easy to predict. When an extreme reading is hit, expect it to reverse hard and fast. If your trade is not profitable, just wait a half hour and it very well may be.” I’m not advocating these approaches, by the way. I bring them up to evidence that the tendency toward late swings is so pronounced that people are now actually hinging investment strategies on it.

I can’t imagine that anyone who’s been paying attention has failed to notice the way things are moving at the close of every day. What’s interesting is that we all see it but that no one really talks too much about why it’s happening. You can toss out a label like “volatile market” as a descriptor, but that really doesn’t explain the causes underlying the end-of-the-day movement.

So, what’s driving these big, fast, strong moves at the buzzer? I’m sure there are many different contributing factors, but I read an article today that caught my attention. Harold S. Bradley, who is the CIO at Kauffman Industries and who blogs regularly for the Kansas City Star, provides some nifty insight. His post, “I Want My Money Back… Now!” argues that hedge funds are one of the reasons we’re witnessing these last-minute flips and flops.

Here’s his position, in a nutshell: It’s obvious that those wild rides are happening for reasons that aren’t directly tied to any real underlying values. One reason involves hedge funds needing to meet margin calls by the end of the year.

Before the onset of the recent “crisis” in the market, hedge funds were able to take out loans for as much as 10x their pledged collateral. They were wielding serious leverage. Now, credit is tight and no one is particularly excited about handing these same folks big stacks of cash. Meanwhile, margin calls are coming due.

So, what do these funds do to meet their obligations? They sell. Bradley summarizes:

So they sell the most liquid assets they own to meet margin calls. Hedge funds typically own a lot of Russell 2000 stocks.

The Russell 2000 index traded down 5% in the last 30 minutes. Today is also the deadline for institutions to tell hedge funds that they, too, want their money back on December 30. Almost all hedge funds require at least 45 days advance notice of intentions to redeem money. It’s not just the lenders who want their money back. That would explain a lot about the last half hour’s stampede for the exits.

I think that’s a solid part of an explanation for last-minute nosedives. It doesn’t do quite as much to explain why some days feature monumental late rallies, though. Herd mentality is often cited as the cause of these big moves, but something must be starting the stampede. If you have any theories as to why the last 30 minutes of the day is becoming the day, please leave them in the comments. I would love to see some other perspectives.

In the meantime, I’m watching in shock, just like Barry Ritholtz from The Big Picture says:

Here’s where merely thinking about numbers helps: You have to have previously thought, “Gee, if I ever see a 10 percent move down, intraday, I’m going to be buying the hell out of that.” But if you haven’t gone through that thought process beforehand, when the opportunity confronts you, it’s like looking at a car wreck. Part of you says, “Gee, I ought to go over and help those people” but the spectator part of you is just thinking, “Man, look at that thing burn.”

Man, look at that thing burn.