Is high volatility the new normal?

The events in the financial markets have, to borrow the common turn of phrase, been unprecedented. But in order to better appreciate the current gyrations of the market, I’ve taken a look at some of the historical market data for the dow jones average over the last few weeks. Thanks to Google Finance, it is possible to get data that provides some frame of reference. Once I got the data, I wanted to take a look at the market moves from a percentage standpoint. The data, after some massaging looks like this:

OpenHighLowCloseHigh/OpenLow/OpenClose/Open
6-Oct-0810,322.5210,322.769,525.329,955.500.00%7.72%-3.56%
3-Oct-0810,483.9610,796.2610,310.2510,325.382.98%1.66%-1.51%
2-Oct-0810,825.5410,825.5410,439.5210,482.850.00%3.57%-3.17%
1-Oct-0810,847.4010,882.5210,631.9510,831.070.32%1.99%-0.15%
30-Sep-0810,371.5810,868.9010,371.4210,850.664.80%0.00%4.62%
29-Sep-0811,139.6211,139.9410,365.4510,365.450.00%6.95%-6.95%
26-Sep-0811,019.0411,168.0610,868.8211,143.131.35%1.36%1.13%
25-Sep-0810,827.1711,129.1910,827.0111,022.062.79%0.00%1.80%
24-Sep-0810,850.0210,928.4010,753.5710,825.170.72%0.89%-0.23%
23-Sep-0811,015.6911,143.2110,833.9410,854.171.16%1.65%-1.47%
22-Sep-0811,394.4211,394.5810,992.2011,015.690.00%3.53%3.32%
19-Sep-0811,027.5111,483.0511,026.7011,388.444.13%0.01%3.27%
18-Sep-0810,609.0111,076.4410,459.4411,019.694.41%1.41%3.87%
17-Sep-0811,056.5811,057.3110,595.9010,609.660.01%4.17%-4.04%
16-Sep-0810,905.6211,093.2210,742.7011,059.021.72%1.49%1.41%
15-Sep-0811,416.3711,416.4510,917.5110,917.510.00%4.37%-4.37%
12-Sep-0811,429.3211,459.9311,280.4011,421.990.27%1.30%-0.06%
11-Sep-0811,264.4411,445.6811,098.6711,433.711.61%1.47%1.50%
10-Sep-0811,233.9111,380.6311,215.2611,268.921.31%0.17%0.31%
9-Sep-0811,514.7311,577.5011,230.7311,230.730.55%2.47%-2.47%
8-Sep-0811,224.8711,570.6611,224.7911,510.743.08%0.00%2.55%
5-Sep-0811,185.6311,245.1511,037.8511,220.960.53%1.32%0.32%
4-Sep-0811,532.4811,532.4811,176.0211,188.230.00%3.09%-2.99%
2-Sep-0811,545.6311,790.1711,471.9011,516.922.12%0.64%-0.25%

Having gotten that data, I then tried to understand the percentage of fluctuation as far as the high and low values for a given day and then for the close of day. I’ve bolded the values that are over 1 percent of fluctuation for a given day.

From this, a few interesting points come up:

  • It seems that market swings of over 1 percent are not that uncommon these days. For the observed period of a month, the market closed with a change of over 1 percent for 19 days compared to 5 under 1 percent.
  • Since Lehman went under, a swing of less than 1 percent only happened twice, both times on Wednesdays (September 24th and October 1st)
  • Significant swings (over 4 percent in either direction for top or low) seem to be becoming more common with 7 of the last 24 trading sessions seeing such swings.

So all this activity begs the question: is high volatility the new normal?

In order to figure that out, I averaged out the percentage of change for the recorded period and then tried to compare that to the volatility since the Lehman failure (with September 15th being the first trading day after the news became official). The results looks as follows:

High/OpenLow/OpenClose/Open
Since September 21.41%2.13%-0.57%
Since September 15 (Lehman failure)1.52%2.55%-0.79%
Difference8.08%19.37%38.14%

I would love for readers to check my math here as it seems that there’s a pretty stunning change (38%) in the overall open to close change in price since the Lehman crisis happens, which makes me wonder whether this is only a temporary period or whether we are going to have to get more used to the concept of large swings in the market.

Anyway one slices it, however, it’s pretty clear that we are looking at a market that is largely panicking and it seems that one cannot deduct any trends (either up or down) from what we are now witnessing. Yes, it’s true that the market has dropped over 10 percent in the weeks following the Lehman bankruptcy, but all this at a time when we’ve seen the market drop almost 7 percent on one day to be followed by an almost 5 percent gain the next day.

I am by no mean a financial wizard, so I’d love some of my more economically astute readers to explain (or provide another area that needs to be explored) whether any of this data holds any value to better understanding what is currently happening.

Previous Post
Culture Crash
Next Post
Apple: Same value, lower price?
Menu