Visualizing Stock Market Risk: 7/1926 to 6/2015 by Wesley R. Gray, Ph.D., Alpha Architect, author,
Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors.
How crazy is current market action?
Not that crazy.
…and if you lived through 2008, definitely not that crazy.
Seeing a -3%+ or a +3% observation is roughly a 1/100 event, or ~ 2.5 times a year. Obviously, return events are not independent and volatility tends to cluster, but the numbers above establish a basic starting point for discussions about daily return action.
Here we present daily total return data from the Ken French library:
- Value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 (essentially ordinary common shares).
There are 23,509 daily return in total.
Daily Return Distribution:
Here are the specific stats:
Bucket | Observations | Frequency | Cumulative |
-5.00% | 59 | 0.25% | 0.25% |
-4.50% | 20 | 0.09% | 0.34% |
-4.00% | 31 | 0.13% | 0.47% |
-3.50% | 46 | 0.20% | 0.66% |
-3.00% | 85 | 0.36% | 1.03% |
-2.50% | 164 | 0.70% | 1.72% |
-2.00% | 289 | 1.23% | 2.95% |
-1.50% | 547 | 2.33% | 5.28% |
-1.00% | 1154 | 4.91% | 10.19% |
-0.50% | 2566 | 10.91% | 21.10% |
0.00% | 5599 | 23.82% | 44.92% |
0.50% | 7048 | 29.98% | 74.90% |
1.00% | 3416 | 14.53% | 89.43% |
1.50% | 1331 | 5.66% | 95.09% |
2.00% | 563 | 2.39% | 97.49% |
2.50% | 237 | 1.01% | 98.49% |
3.00% | 115 | 0.49% | 98.98% |
3.50% | 69 | 0.29% | 99.28% |
4.00% | 61 | 0.26% | 99.54% |
4.50% | 37 | 0.16% | 99.69% |
5.00% | 19 | 0.08% | 99.77% |
More | 53 | 0.23% | 100.00% |
How about drawdowns?
Daily returns are one thing–let’s review the top 30 stock market drawdowns over the past 90+ years.
Rank | Date Start | Date End | VW_CRSP |
1 | 8/30/1929 | 6/30/1932 | -83.67% |
2 | 10/31/2007 | 2/28/2009 | -50.37% |
3 | 2/27/1937 | 3/31/1938 | -49.18% |
4 | 12/31/1972 | 9/30/1974 | -46.46% |
5 | 8/31/2000 | 9/30/2002 | -45.09% |
6 | 11/30/1968 | 6/30/1970 | -33.56% |
7 | 8/31/1987 | 11/30/1987 | -29.91% |
8 | 8/31/1932 | 2/28/1933 | -28.47% |
9 | 5/31/1946 | 5/29/1947 | -23.85% |
10 | 12/31/1961 | 6/30/1962 | -23.06% |
11 | 1/31/1934 | 7/31/1934 | -18.34% |
12 | 8/31/1933 | 10/31/1933 | -17.95% |
13 | 4/30/2011 | 9/30/2011 | -17.71% |
14 | 6/30/1998 | 8/31/1998 | -17.39% |
15 | 5/31/1990 | 10/31/1990 | -16.97% |
16 | 11/30/1980 | 7/31/1982 | -16.62% |
17 | 1/31/1966 | 9/30/1966 | -15.45% |
18 | 7/31/1957 | 12/31/1957 | -14.95% |
19 | 4/30/2010 | 6/30/2010 | -12.99% |
20 | 1/31/1980 | 3/31/1980 | -11.98% |
21 | 8/31/1978 | 10/31/1978 | -11.95% |
22 | 6/30/1983 | 5/31/1984 | -10.83% |
23 | 3/31/2000 | 5/31/2000 | -9.64% |
24 | 12/31/1976 | 2/28/1978 | -9.33% |
25 | 7/31/1956 | 2/28/1957 | -8.37% |
26 | 8/31/1986 | 9/30/1986 | -8.15% |
27 | 3/31/1936 | 4/30/1936 | -8.02% |
28 | 12/31/1959 | 10/31/1960 | -7.97% |
29 | 6/30/1943 | 11/30/1943 | -7.76% |
30 | 1/31/1994 | 6/30/1994 | -7.60% |
And here are the numbers outlined on a chart:
Clearly, if you can’t handle volatility, you shouldn’t be in the stock market.