Oct

31

(This is in the literature, but wanted to check it).

Using quarterly-change in (%, 2000 dollar adjusted) GDP, checked stdev
every 16 quarters starting back from Q3 2008, to 1952:

Date        16Q stdev
2008q3    1.75
2004q3    2.02
2000q3    2.05
1996q3    1.80
1992q3    2.36
1988q3    1.57
1984q3    5.21
1980q3    5.19
1976q3    4.70
1972q3    4.13
1968q3    3.48
1964q3    3.50
1960q3    5.87
1956q3    5.47
1952q3    6.65

Noticeable reduction in volatility since the late 1980s, dating with the Greenspan tenure. The attached chart shows the source data, which suggests we have been in much more stable economy in the recent 20 years.

Looking at the quarterly GDP data, checked for the pattern "UDX" (up qtr, down qtr, next=X). Found that 30% of X were negative (2 consecutive down GDP qtr), whereas in the whole series (1947-present) down quarters were 15%. And the means of X and all qtr were not significantly different (test not shown).

Also checked DJIA quarterly returns with respect to QTR GDP changes. Here is test of mean quarterly returns for DJIA for all qtr of the series (DOW QTR), simultaneous with down GDP QTR (DOW SQ), and those qtr following down GDP QTR (DOW NQ):

One-Sample T: DOW QTR, DOW SQ, DOW NQ

Test of mu = 0 vs not = 0

Variable       N   Mean   StDev   SE Mean       95% CI            T      P
DOW QTR  243  0.0197  0.0737  0.0047  ( 0.0104, 0.0290)  4.17  0.000
DOW SQ     35  0.0155  0.0858  0.0145  (-0.0139, 0.0450)  1.07  0.292
DOW NQ     34  0.0262  0.0893  0.0153  (-0.0049, 0.0574)  1.71  0.096

Stocks average up during down GDP QTR, and interestingly up even more the following QTRs.


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