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Visualizing Stock Market Risk: 7/1926 to 6/2015

Visualizing Stock Market Risk: 7/1926 to 6/2015 by Wesley R. Gray, Ph.D., Alpha Architect, author,

Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors.

How crazy is current market action?

Not that crazy.

…and if you lived through 2008, definitely not that crazy.

Seeing a -3%+ or a +3% observation is roughly a 1/100 event, or ~ 2.5 times a year. Obviously, return events are not independent and volatility tends to cluster, but the numbers above establish a basic starting point for discussions about daily return action.

Here we present daily total return data from the Ken French library:

  • Value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 (essentially ordinary common shares).

There are 23,509 daily...