A less frightening month for stocks
Barry Ritholtz | 05 Oct 2018 00:30
Boo! October is here, and that inevitably means fear of stock market crashes. Whether it is the Great Crash of 1929 (Black Tuesday) or the 23% one-day crash of 1987 (Black Monday), October has some scary history behind it. But when we look at the full century of crashes objectively, October is much less frightening than its reputation. Let’s look closer than the usual fear-mongering suspects on the internet to see if there is anything to their annual angst.
Two things we should be aware of regarding “the most dangerous” of all months: Historical patterns imply elevated levels of volatility, and market returns may be disappointing.
The problem with the statistical claims about October is that we have an awfully small sample set. We have about a 100 or so Octobers to consider — too small a number to be used for drawing hard conclusions.
Worse, the underlying market structure which may be responsible for some crashes has changed dramatically over that century. This is not a case of this time is different so much as it is a case of changing market structure, including lots of new ways to exe- cute and settle trades.
This doesn’t mean stocks are immune to trouble; rather, it suggests old market structure issues have been resolved, perhaps in exchange for a set of new and different problems.
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