rms of indices

From: John Conover <john@email.johncon.com>
Subject: rms of indices
Date: 3 Jan 2001 08:05:13 -0000

Just as kind of an FYI, Blake LeBaron,
(http://www.ssc.wisc.edu/~blebaron/,) one of the NLDS, (chaos,)
theorist pointed out in 1991, that for some reason, market crashes are
always preceded by an increase in the root mean square of the daily
marginal returns of the indices. (Which is vary characteristic of
bifurcations in NLDSs.)

If you use the tsrmswindow program, (from
http://www.johncon.com/ntropix/utilities.html,) on the historical
database of the DJIA, S&P500, and NASDAQ, it seems to be true. For

   tsfraction data_file | tsrmswindow -w 100

where data_file is the time series for the NASDAQ, will make a plot
file that shows that for several years, the rms values have been
running about 3X their average value-averaged since 1971. A like
scenario happened in the late 20's to the DJIA and S&P. Likewise for
the other crashes and crash'ets of the 20'th century.


BTW, as nearly as I can tell, the US equity market has degenerated
enough such that 5-10% of the US's net wealth has went up in smoke.
About 3-5 trillion bucks have been lost, (depending on who is doing
the counting,) and the US net wealth is estimated at about 50 trillion
bucks-about a forth to half of the world's net wealth, (Re: the US
FED-I have no idea how they measure that; what is the value of the
nuclear weapons arsenal? How is it depreciated?) Its a fairly sizable
chunk of the world's net wealth.


John Conover, john@email.johncon.com, http://www.johncon.com/

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