From: John Conover <john@email.johncon.com>
Subject: Chances of NASDAQ being down this far?
Date: 30 Nov 2000 08:22:14 -0000
The NASDAQ's down, roughly, about 50% since mid March, (5132.50 at its
maximum, to 2642.49 today.) There have been about 170 trading days
since then, and the deviation, (square root of the variance = root
mean square,) of the fluctuations is about 2% per day, (meaning that
for 68.3% of the time, the day-to-day fluctuations were less than 2%.)
The average magnitude of bull and bear markets follows a square root
function in time, (Black-Scholes dogma, where deviation = risk,) so a
standard deviation at the end of 170 trading days would be 0.02 * sqrt
(170) = 26.1%, (meaning that for 68.3% of the time, the change in the
index would be less than +/- 26% at the end of 170 trading days.)
Or, the current bear market is about a two sigma, (50% / 26%,)
affair-meaning that what we are seeing has about a 0.0228 = 2%
probability.
In other words, we would expect to see the market down, at least as
much as its down now, (in a year,) in only 2 years in a century.
John
BTW, it works out about right. The only time a major US equity indice
has lost 50% of its value in a year, in the last hundred years, is
1929/1930 and 2000.
--
John Conover, john@email.johncon.com, http://www.johncon.com/