Feb

28

 Having continued with Jay Pasch's counting of the Chinese carnage of Tuesday (as published here on Feb 28th), and instead of using confidence intervals, I looked at extreme values. Based on daily returns from the 2nd of January 1987 utill today (4992 obs.), here are the left and right tails of the return distribution:

%return    <-% obs        normal dist    >+% obs

0.1            2184              2321                2418
0.5            1466              1865                1663
1                876               1337                1041
2                334                 596                  371
3                140                 182                  136
4                  69                   50                   61
5                  36                    9                    27
6                  23                    1                    15
7                  18                    0                     9
8                  12                    0                     5
9                   8                     0                     2
10                 6                     0                     2
 
What is clearly striking is that declines of three percent or more have been observed more frequently than 3+ percent increases. If one were to use a normal distribution to describe Hang Seng daily returns (which is rejected at any level of significance), one would clearly underestimate the frequency of extreme returns of ± 4 and surely of ± 7 percent. Which distribution would thus fit Hang Seng returns, and also its asymmetry in extreme values? 

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