Given the central role Bank of America (NYSE:BAC) played in the financial crisis, as well as the ups and downs it's experienced since then, it probably won't surprise you to hear that its stock is heavily traded. But just how heavily traded it is may in fact come as a shock.
Bank of America's average daily trading volume
When you look at the average daily trading volume of Bank of America's shares, no other blue-chip stock even comes close.
Over the last month, an average of 143 million shares of the North Carolina-based bank have changed hands each day. That compares to an average daily volume of only five million shares for the typical stock on the S&P 500.
Even if you compare Bank of America to the other heavily traded stocks on the S&P 500, it's still in a league of its own. The average daily volume of the runner-up, Chesapeake Energy, amounts to only 55 million shares. That's only a little more than a third of Bank of America's volume.
What's going on here?
To understand why Bank of America's shares are so heavily traded, you have to look at the issue from both a short- and a long-term perspective.
Over the short-term, the trading in Bank of America's shares soared as a result of the presidential election. President-elect Donald Trump's promise to boost fiscal spending and "dismantle" the Dodd-Frank Act have magnified the market's focus on bank stocks.
If Trump is able to get his proposals through Congress, which seems reasonable to assume given that Republicans control the House and the Senate, then banks should make a lot more money. This is why bank stocks have outperformed the broader market since the beginning of November.
And no bank stock stands to benefit more from these changes than Bank of America. It went into the election with one of the lowest valuations in the bank industry, and it stands to gain more than most banks from an improving economy and eased regulations.
But even though Bank of America's trading volume has surged since the election, it was already elevated. When its share price dropped in the wake of the financial crisis, thanks to dramatically dilutive share offerings, it became a favorite of hedge funds, which could afford to trade many millions of its shares for the same cost as only hundreds of thousands of shares of other banks.
To this end, prior to the crisis, Bank of America's average daily trading volume was only around 15 million shares a day. That's a tenth of its current level.
Consequently, by combining these two things -- the financial crisis and the presidential election -- one is able to understand why Bank of America's stock remains the most actively traded member of the S&P 500.