V. 9:11 (477-477): Letters To S&C
Product Description
LETTERS TO S&C
THE UPS AND DOWNS OF IT
Editor,
I have some questions regarding "Historical movement of the stock market" (STOCKS & COMMODITIES,
November 1991). Mr. Moody states that the data cover the quarterly periods from 1940 through June
1991. This would be 206 quarters. My questions are:
1. Figures 1 and 2 cover 82 quarters, not 206. Why was 60% of the quarterly data not reported? Also, all
frequency charts I have previously seen show the market up 60% of the time, but these two charts are
50/50.
2. Figures 3 and 4 together appear to cover 196 of the 206 quarters. Were the missing 10 quarters
effectively unchanged? In these two figures the frequency does follow the 60% up and 40% down
expected distribution.
3. How does Mr. Moody calculate down moves? (A 20% down move requires a 25% recovery to be back
to even.)
DOUGLAS B. BEATH
Jupiter, FL
Mr. Moody replies:
Regarding #1: Figures 1 and 2 do cover all 206 quarters. The caption on Figure 1 ,for instance, reads
"Up moves by size and frequency." I believe you may be misreading this to mean quarterly price change.
In the article, an "up move" is defined as "consecutive positive quarterly (average) total returns." Thus,
an up move can easily consist of two or more consecutive positive quarters. As a result, there are fewer
up moves than quarters. In addition, these charts show frequency of up moves and down moves, not
frequency of up quarters. An up move by definition is always followed by a down move, which is why the
frequency of up and down moves is 50/50.
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