Closer Look Reveals Key Factors in Wall Street Ride.

WALL Street has become a wilder ride than ever.

In some ways, it shouldn't be this way. The institutional shareholders -- mutual funds, money managers, nationwide brokerages -- have grown larger and more powerful over the years.

Supposedly, they are well-informed and supremely rational traders, unlike Hal Hothead, who buys stock on a tip from his bartender.

"Well, it should be more rational, but so far it hasn't worked out that way," said William "Bill" Mason, money manager with Cullen, Fortier Asset Management in Woodland Hills and a finance professor at Pepperdine University.

Some of the blame can be laid on "momentum" buyers -- money managers who purchase stocks because they're going up. In the past 10 years, they have gained favor. The problem is, they buy when the market goes up and sell when it goes down, exacerbating both trends, according to Mason.

In addition, in response to Tule changes by the Securities and Exchange Commission two years ago, brokerages now collect a smaller "spread" -- the difference between the "bid" and "asked" prices -- on Nasdaq stocks. The profit formerly made on spreads allowed brokerages to keep pools of stock in-house to which they were willing to add as sellers came forth. Thus, brokerages tended to retard price swings.

"Now, they don't buy as many shares of a sinking stock," Mason pointed out.

The result? When sellers find no buyers for a stock at a certain price, they start cutting the cost even more until a buyer finally steps up. On certain days, that might make for quite a downward roll.

And once a tumble begins, it can snowball quickly, said David Ryan, founder of the Ryan Capital Management money management shop in West L.A.

Ryan concurs with Mason on those dynamics and says price action on many stocks is not only driven by trend-happy institutions but also by jumpy day traders. That is reflected in the fact that the size of trades, especially on tech stocks, is often small.

"On a lot of these tech stocks, you see a 100-share block, then a 200, a 100, a 400, a 100," Ryan said. "You rarely see a trade of more than 1,000 shares."

It all makes for a curious world. Institutions may be the behemoths of the Street and own the lion's share of a given company's floating stock, but the value of their investment is set by day traders, who own minuscule blocks, frequently for fleeting lengths of time.

None of this is very reassuring.

Indeed, volatility appears to be the new norm. There is a possibility that a sort of cultural wisdom may settle in over time, as too many investors get burned playing the momentum game and others weary of the hunt.

But the reluctance of brokerages to act as de facto market "brakes" by holding pools of stocks appears to be permanent, as does the technology that allows day trading. "I would get used to volatility, at least for now," said Mason.