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:

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:

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.