Jan

27

SP500 index daily return series 1950-present was checked for close-close declines of more than 2+%. For each 2+% drop day, counted trading days into the past until the prior 2+% drop (wait time between 2% drops). For each drop, also counted trading days into the future to the next 2+% drop.

The attached scatter plot shows each 2+% drop, according to wait from prior drop (X axis) and wait until subsequent drop (Y).

Alston Mabry writes: 

The thing about using an absolute value like -2% is that you have to also look at contemporaneous volatility. Here's a plot of the "days since last 2% drop" value for the S&P (since 1950), against the SD of the % changes for the previous 60 trading days:

And here's a closeup of the area nearer the x axis.

What's not surprising is that long waits occur when volatility is low, and short waits occur when it is high.


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