From: John Conover <john@email.johncon.com>

Subject: Decline in NASDAQ

Date: 12 Oct 2000 21:00:17 -0000

How bad is the decline? Since mid March, the NASDAQ has fallen about 40%. The variance of the returns for the NASDAQ typically runs a little over 2% per day; so, using about 20 trading days per month, from mid March to Mid October-about seven months, or about 140 trading days-we would expect the index value to be +/- 24% per standard deviation, (meaning that for 15.8% of the time we would expect it to be above 24% gain, and 15.8% of the time, below 24% loss-the 24% came from knowing that the magnitude of run lengths in a Brownian fractal, which are self-similar, are equal to the square root of time, times the daily variance, or sqrt (140) * 0.02 = 0.24.) Or, 40% is about 40 / 24 = 1.67 standard deviations, or a probability of one in 1 / 0.048 = 21; meaning that, on average, every 21 seven month periods, (about 147 months, or 12.25 years,) we would expect to see a decline, at least as bad as this one. Not that bad when looked at in that way-depending on one's POV, and who is telling the story, of course. John BTW, although the current decline is slightly faster than the 1930-1931 decline in the US equity markets, in the Great Depression the market indices just continued to deteriorate for about a year and a half-until the market capitalization had lost about 90% of its value. Working through similar logic, (its Black-Scholes concepts,) it turns out to be a once-a-millennia probability. -- John Conover, john@email.johncon.com, http://www.johncon.com/

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