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 return in total.
Daily Return Distribution:
Here are the specific stats:
| Bucket | Observations | Frequency | Cumulative |
| -5.00% | 59 | 0.25% | 0.25% |
| -4.50% | 20 | 0.09% | 0.34% |
| -4.00% | 31 | 0.13% | 0.47% |
| -3.50% | 46 | 0.20% | 0.66% |
| -3.00% | 85 | 0.36% | 1.03% |
| -2.50% | 164 | 0.70% | 1.72% |
| -2.00% | 289 | 1.23% | 2.95% |
| -1.50% | 547 | 2.33% | 5.28% |
| -1.00% | 1154 | 4.91% | 10.19% |
| -0.50% | 2566 | 10.91% | 21.10% |
| 0.00% | 5599 | 23.82% | 44.92% |
| 0.50% | 7048 | 29.98% | 74.90% |
| 1.00% | 3416 | 14.53% | 89.43% |
| 1.50% | 1331 | 5.66% | 95.09% |
| 2.00% | 563 | 2.39% | 97.49% |
| 2.50% | 237 | 1.01% | 98.49% |
| 3.00% | 115 | 0.49% | 98.98% |
| 3.50% | 69 | 0.29% | 99.28% |
| 4.00% | 61 | 0.26% | 99.54% |
| 4.50% | 37 | 0.16% | 99.69% |
| 5.00% | 19 | 0.08% | 99.77% |
| More | 53 | 0.23% | 100.00% |
How about drawdowns?
Daily returns are one thing–let’s review the top 30 stock market drawdowns over the past 90+ years.
| Rank | Date Start | Date End | VW_CRSP |
| 1 | 8/30/1929 | 6/30/1932 | -83.67% |
| 2 | 10/31/2007 | 2/28/2009 | -50.37% |
| 3 | 2/27/1937 | 3/31/1938 | -49.18% |
| 4 | 12/31/1972 | 9/30/1974 | -46.46% |
| 5 | 8/31/2000 | 9/30/2002 | -45.09% |
| 6 | 11/30/1968 | 6/30/1970 | -33.56% |
| 7 | 8/31/1987 | 11/30/1987 | -29.91% |
| 8 | 8/31/1932 | 2/28/1933 | -28.47% |
| 9 | 5/31/1946 | 5/29/1947 | -23.85% |
| 10 | 12/31/1961 | 6/30/1962 | -23.06% |
| 11 | 1/31/1934 | 7/31/1934 | -18.34% |
| 12 | 8/31/1933 | 10/31/1933 | -17.95% |
| 13 | 4/30/2011 | 9/30/2011 | -17.71% |
| 14 | 6/30/1998 | 8/31/1998 | -17.39% |
| 15 | 5/31/1990 | 10/31/1990 | -16.97% |
| 16 | 11/30/1980 | 7/31/1982 | -16.62% |
| 17 | 1/31/1966 | 9/30/1966 | -15.45% |
| 18 | 7/31/1957 | 12/31/1957 | -14.95% |
| 19 | 4/30/2010 | 6/30/2010 | -12.99% |
| 20 | 1/31/1980 | 3/31/1980 | -11.98% |
| 21 | 8/31/1978 | 10/31/1978 | -11.95% |
| 22 | 6/30/1983 | 5/31/1984 | -10.83% |
| 23 | 3/31/2000 | 5/31/2000 | -9.64% |
| 24 | 12/31/1976 | 2/28/1978 | -9.33% |
| 25 | 7/31/1956 | 2/28/1957 | -8.37% |
| 26 | 8/31/1986 | 9/30/1986 | -8.15% |
| 27 | 3/31/1936 | 4/30/1936 | -8.02% |
| 28 | 12/31/1959 | 10/31/1960 | -7.97% |
| 29 | 6/30/1943 | 11/30/1943 | -7.76% |
| 30 | 1/31/1994 | 6/30/1994 | -7.60% |
And here are the numbers outlined on a chart:
Clearly, if you can’t handle volatility, you shouldn’t be in the stock market.
