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Doomed To Repeat It?
Nov 11, 2008
With large market shocks on display with frightening regularity, we have seen numerous comparisons of the current period to past crises, in terms of the macroeconomic environment and in simple statistics on how far the market has moved. As a complement to these analyses, we look at risk from a historical perspective, examining the volatility of the Dow Jones Industrial Average over more than a century of returns. We see that though volatility today is less than after the two worst market crashes in history, it is nonetheless remarkably high. Interestingly, though plenty has happened in the last several months, there have been few true surprises, in the sense of large losses relative to the prevailing volatility. The absence of surprises during a significant run-up in volatility has only one historical precedent: the longest period of sustained volatility ever, in the years 1931--1933.
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