October Performace

From a recent academic paper on the performance of the DJIA in October 2008:

"We selected the six largest daily percentage changes in the Dow Jones Industrial Average during October, and asked the question of how frequent these changes occur assuming that, as is commonly done in finance models, these events are normally distributed. The results are truly astonishing. There were two daily changes of more than 10% during the month. With a standard deviation of daily changes of 1.032% (computed over the period 1971-2008) movements of such a magnitude can occur only once every 73 to 603 trillion billion years. Since our universe, according to most physicists, exists a mere 20 billion years we, finance theorists, would have had to wait for another trillion universes before one such change could be observed. Yet it happened twice during the same month. A truly miraculous event. The other four changes during the same month of October have a somewhat higher frequency, but surely we did not expect these to happen in our lifetimes."


(1) Daily returns from 01/01/1971 – to 31/10/2008 (Source Datastream)

(2) The mean of the distribution is set to zero and the standard deviation computed over the whole sample (St. Dev. = 1.032%).

(3) 10 21 = “Sextillion” in Western (Arabic) Numeral; “Trillion Billion” in US; modern British & Australian

Paul De Grauwe, Leonardo Iania, and Pablo Rovira Kaltwasser