Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (34468)	5/22/2000 4:12:00 PM
From: BGR	Read Replies (1) \| Respond to of 42523

Ah, common sense! I love common sense, especially when they are at odds with scientific findings!

To: LLCF who wrote (34468)	5/22/2000 5:55:00 PM
From: reaper	Read Replies (1) \| Respond to of 42523

David Quite a lot more than common sense... Real world tails are extremely "fat" A simple Excel spreadsheet and ten years of historical daily prices reveals: Number Normal S&P Yen/ 10-Year Sigma Dist 500 $US Rates 1 0.3173 0.1954 0.2547 0.2554 2 0.0455 0.0372 0.0563 0.0565 3 0.0027 0.0079 0.0127 0.0134 4 0.0001 0.0044 0.0031 0.0024 5 0.0000 0.0028 0.0008 0.0008 So as you can see (or maybe can't since I don't know how to publish this table properly in HTML) a 4-standard deviation event is orders of magnitude more likely that the normal table in the back of BGR's stats book would predict. A general rule of thumb is that every market experiences one or more daily price moves of 4 standard deviations or more each year. And in any year, there is usually at least one market that has a daily move that is greater than 10 standard deviations. Correlations go to hell during major market crisis events; they all go to 1 or -1. So day-to-day history and all the academic studies go out the window. BGR and other bulls seem to keep saying "Well, I don't see anything on the horizon that will upset the equity markets. And historical academic research tells me that stocks will always outperform." Which is precisely the point; the greatest risk is the risk unseen. Cheers