Hi There!

Check out this list of the 10 worst days (by percent) in stock market history.

Oct. 19, 1987, 508 points, 22.61 percent.
Oct. 28, 1929, 38.33 points, 12.82 percent.
Oct. 29, 1929, 30.57 points, 11.73 percent.
Nov. 6, 1929, 25.55 points, 9.92 percent.
Dec. 18, 1899, 5.57 points, 8.72 percent.
Aug. 12, 1932, 5.79 points, 8.40 percent.
March 14, 1907, 6.89 points, 8.29 percent.
Oct. 26, 1987, 156.83 points, 8.04 percent.
July 21, 1933, 7.55 points, 7.84 percent.
Oct. 18, 1937, 10.57 points, 7.75 percent.


This question has two parts:

1.  What are the 10 days when the market gained the most?
(In other words, a list similar to the list above----only up instead of down.)

2.  I would like to find two academic articles discussing the fact
markets plunge (on very bad days) faster than they rise (on very good
days).  Obviously, investor panic can be more acute than investor
greed.  :-)

These two articles would probably be found on a .edu web site.


Thanks a million.  All comments greatly appreciated!

ron

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Request for Question Clarification by omnivorous-ga on 20 Apr 2005 16:15 PDT

Ron --

I'm still working on this question but found a gem of a book while
doing it.  An economist named David Glasner, who works for the Bureau
of Economics at the U.S. Federal Trade Commission has put together a
stunning book called "Business Cycles & Depressions: An Encyclopedia,"
Garland Publishing, 1997.  It's a bit pricey but your local library
probably has a copy in the reference section.

It's the perfect fit to what you're asking because it has multiple
articles on the issues, including looks at specific market collapses
and structural causes.  What makes it so perfect for your question is
his citation of authoritative academic sources of analyses at the end
of each article.  Here is an excellent review at EconomicHistory.net:

Robert Whaples Review
http://www.eh.net/lists/archives/eh.res/sep-1997/0001.php

There's really only one drawback to this book: it was published in
1997, so the citations are all 9+ years old.  But it's so good that I
feel like writing Glasner and asking when the next edition appears.

BTW, it's a manageable size and not a many-volumed enclyclopedia. 
It'd fit in your flight bag alongside the Jepps.

Best regards,

Omnivorous-GA

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Clarification of Question by nronronronro-ga on 21 Apr 2005 12:04 PDT

Thanks a million, Omnivorous !

When convenient, please post as an answer so I can pay you.


Your old-not-bold pal,
ron

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Request for Question Clarification by omnivorous-ga on 21 Apr 2005 12:59 PDT

Ron --

No, I'll actually have a couple of articles for you to read.  But you
ask fundamental investment research questions and I thought that you'd
be very interested in that book.  I went looking for Mr. Glasner's
e-mail address to ask if an update was on the way -- and found his
phone number at the FTC but not the e-mail.

I may not get answer lassoed until tomorrow but will definitely post
something before the weekend.

Best regards,

Omnivorous-GA

---

Clarification of Question by nronronronro-ga on 21 Apr 2005 20:46 PDT

Thanks again, Omnivorous !


ron

Ron --

A couple of notes:
*  is the data the Dow-Jones Industrial Average or the much-broader
(and more academically accepted) Standard & Poor's 500?
*  I would expect rapid declines due to sudden bad news, such as
passage of the Smoot-Hawley tariff or an oil embargo.  It's hard to
imagine similar "good news" effects.  After, even the end of a major
war would involve incredible economic re-allocations.

I'm tied up for about 24 hours but if none of the other researchers
finds a way to tackle this one, it's a very interesting question.

Best regards,

Omnivorous-GA

Omnivorous,

1.  You are absolutely correct.  Data for the S&P 500, NASDAQ, or
other broadbased index would be better than the Dow.  I'm not picky.

2.  Your point is right on target.  Seems to me there are at *least*
two different reasons markets fall more quickly than they rise:
   (a)  people "panic down" faster than they "panic up"
   (b)  unexpected news is divided as follows:  80% bad news, 20% good news

3.  Here is my theory:  good news (e.g., a war ending, economy
strengthening, etc.) is a gradual process which is telelgraphed to the
public well in advance.  But bad news (e.g., oil embargo, terrorist
attack, etc.) is often a sudden process with no prior warning.

4.  I know several academics have already studied this phenomenon. 
Some were finance professors, and some were psychology professors. 
But I don't know what they concluded concerning either results or
causes.

5.  One other note:  being an old guy, I remember well the crash of
1987.  One of the things that increased the selling that day was
"portfolio insurance."  Before that crash, many money managers
believed they would have time to sell or hedge when the market first
started declining.  But they were very wrong.  On the day of the
crash, the market fell so fast that it "got away from them."

6.  I would bet some academic studies on the speed of declines versus
speed of advances were funded in 1988 and 1989, given this was a hot
topic following the crash of 1987.

Thanks, Omnivorous, for your interest!

ron

HI Ron,
Omnivorous is surely going to come up with all sides of the answer to
your question.
One significant factor is that when bad news occurs, everyone in the
market CAN sell, which causes the sudden decline, of course, but they
can get rid of their stocks.  Were a good event of equally broad
impact to occur, something that every potential investor immediately
recognized would drive the market up, they all could not buy and buy
and buy, simply because the funding would not be available.

Of course, Omni has already pointed out that such a surprising good
event is very unlikely, and you rightly mention that it would be seen
approaching (no surprise effect), so that the market would have been
moving up already.

Another hindrance to a sudden, massive market upswing is that the
decision to buy stocks is more complicated than that to sell.  You
have to make choices.  Even if you knew that every stock was going to
increase in value, you would still try to pick the most promising
ones, probably in agreement with many others, so those stocks might
sky-rocket, but the broader index would not.

The 1987 downturn was also fueled by computer tracking programs that
gave sell signals, indeed, may have intiated sales automatically for
some investment funds, creating a snowball effect.

(And don't feel like "an old guy" just 'cause you can remember the '87 crash :)

<quote>
(And don't feel like "an old guy" just 'cause you can remember the '87 crash :)
</quote>

And remember this little ditty:

  'You can't go wrong if you're selling long'

Plus don't forget the math of up vs. down.  A $60 stock that loses 50%
of its value is now at $30.  It must go up 100% to get back to the
starting point.  So dollar wise its the same amount but its all about
percentages

Plus don't forget the math of up vs. down.  A $60 stock that loses 50%
of its value is now at $30.  It must go up -->100%<-- to get back to
the starting point.  So dollar wise its the same amount but its all
about percentages

Myorarin,

Thanks, as always, for your insightful comments.  I especially like
your point that the decision to buy is more complex than the decision
to sell.  Exactly right!

Thanks again.

Ol' Ron

Hola, Brettola!

Thank you very much.  I appreciate it !

ron

Ron --

I've read a half-dozen articles and am not finding PRECISELY what
you're seeking, though I have some interesting facts on market
volatility.  There are some interesting elements to volatility -- and
some unknowns.

I'll probably post something tomorrow after I have a look at several
other papers, though the question remains open to other (more clever)
researchers.

Best regards,

Omnivorous-GA

Thanks, Omnivorous.

Whatever you post will be good enough for me.

See ya...ron

G'day Ron,

No, I have not read all comments.

All I can say is, you can buy put (down) options
and punt (up) options.

Money is there to be made provided that movement 
is a happening.

Phil

Thanks, Phil.

I appreciate your comments, as always!

ron