Feb

28

Relative Size, by Kim Zussman

February 28, 2007 |

The size of yesterday's decline in stocks was in the top several since the 1990's, however, since volatility and the size of moves in general were greater in the past, one way to put today in context is in comparison to recent market behavior.

This kind of analysis could pertain to trader herding: Long periods of small moves punish those betting on big moves while rewarding small patterns (and vice versa for volatile markets). In terms of environmental pressure, recent market behavior selects for followers, but such easy feeding may occasionally lure them to extinction.

SPY daily returns since 1993 were checked for cases where the close to close move was bigger than 2% (up or down). At each such instance, the prior 100 day mean and standard deviation were calculated and used to determine how many (recent) standard deviation units the big move (in absolute terms) was.

For big moves compared to the prior 100 days, todays decline of almost 4% in SPY was over eight standard deviations more than the mean move; ranked 1st of all such moves in relation to standard deviation.


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