Apr

10

I believe that there may be some universal constants in the way the markets return to certain levels. This idea was set in motion for me by the Taborrok work on the capture and return rates for felons, and I have included some stats that will provide a base for the returns of stocks. Since the beginning of 1999 to present day, stocks have set 206 20 day lows. The next day was up 123 times and down 83 times, and of those 123 times that failed to hit a new low twice in row, the time to return was as follows:

The return or capture rate is much faster for the 20 day highs, with an expected duration of return about 25% less than for the lows. There were 209 occasions when a 20 day low was not returned to again for at least 51 days, but only 56 days when a 20 day high was not requited in 50 days or less. Remember that these are the durations to the next 20 day low, which could actually be at a higher level than the previous 20 day low. Similarly the 20 day highs could be to a lower level than the previous 20 day high.

In subsequent installments I shall provide base line levels of return that can be compared to Taborrok's felons. You ask me, why study a striking numerical aspect of returns that has so much to do with the drift and properties of random numbers. The reason is that sometimes a beautiful understanding can come from pursuits of this nature, and the result can be a meal for a lifetime! 

There is beauty in the bellow of the blast,
There is grandeur in the growling of the gale,
There is eloquent outpouring,
When the lion is a-roaring,
And the tiger is a-lashing of his tail!
[Continued ]


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