Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Market’s Downward Tilt

admin by admin
January 14, 2014
in Uncategorized
0
0
SHARES
1
VIEWS
Share on FacebookShare on Twitter

by Salil Mehta, Statistical Ideas

So far in 2014, the Dow Jones Industrial average has dropped for 5 of the first 7 trading days. Conversely, this index has risen for 2 of the first 7 trading days, also equating to a simple 28% probability of an up-day. If markets are simply continuing last year’s upward march, how do these patterns fit in so far? Also how do these YTD market statistics match up versus prior years, and what do they imply about the Bayesian tilt with which 2014 has begun?

First we look at the theoretical distribution provided by a probability tree, where each successive day has an equal 50% chance of either branching up, or branching down. Then for a specific tree path over the first 7 days, a red value was given to indicate a down-day, while a green value was given otherwise. For more on combinatorics, one should see this first note and second note. As a reminder, we have a search bar on the blogsite so that one can independently retrieve statistics research under any term(s).

To read the tree above, for 2014, we see that the first trading day of 2014 was down. And this of course had a 50% theoretical chance of happening. Then the second trading day was up, and so we end that day with a score of one down-day out of two days. This score too has a 50% chance as shown (e.g., there is another 25% chance we’d instead have two up-days in a row, and lastly a 25% chance to instead have two down-days in a row). Through today, January 10, we’ve collected five down-days out of seven trading days. We see on the tree above, that this outcome has a 16% chance of occurring. We also see that the probability of having five or more down-days, out of seven trading days, is slightly larger at 23% (or ~16%+5%+1%).

A different interpretation of this 23% chance is that over the 14 years prior to this one, 3 of them (23%*14) should have also had at least 5 down-days out of the first 7 trading days. And empirically this is true: 2001, 2005, 2009. That’s some company.

But these probabilities were again derived assuming a fair 50% chance for either an up-day, or a down-day. Or a close to trendless market, which lacks general direction, even though we technically understand that over the long-run markets offer a slight upward trend. What would have been the probability of seeing five drops out of seven trading days, if we instead had assumed different up-day probabilities, ranging from 25%, to 75%? We see in the chart below, that as our assumption for the daily chance for an up-day increases, the probability of having five drops (out of seven trading days) falls well below our 16% baseline. Put differently, having five drops out of seven is less probable (from 16%, to 6%), if we switch from assuming a fair 50% up-day probabilities to a slight up-streak characterized by 60% up-day probabilities. Conversely, as the daily chance for an up-day decreases, the probability of having five drops (out of seven trading days) rises well above our 16% baseline.

Let’s then use our assumed probability of an up-day to better explore our likelihood of outcome. We know the chance that we are in a general phase far from fair (i.e., normal 50% probability of an up-day) decreases the farther away the up-day probability is from 50%. Being in a strong up-streak (e.g., 75% up-day probability) or in a strong down-streak (e.g., 25% probability of an up-day) for extended periods is simply not as likely versus being in a phase closer to a 50% up-day probability. Technically the markets have a slight upward trend so their up-day probability is only slightly higher than 50%.

So we rearrange our likelihood distributions accordingly, and better understand our recent outcome taking this behavior (e.g., using the variance of a compounded Bernoulli distribution) into account. We initially stated that having 2 up-days out of the first 7 trading days is a 28% probability, but in the illustration below we can see how our new Bayesian likelihood levels look. It shows that we are instead closer to being in a slight down-streak period, characterized by up-day probabilities closer to 40% (less than a fair 50% chance of an up-day).

In other words we are more likely to be tilted in a slight down-streak (about 39% likelihood of being in a 40% up-day probability phase) versus being tilted in a slight up-streak (about 9% likelihood of being in a 60% up-day probability phase). Whether we consider the 6% fair chance to see our YTD results from about a 60% up-day probability (chart above), or a 9% chance to see it from with Bayesian conditions (chart below), both probabilities are too low to fit along any discussion that 2014’s YTD performance is just a continuation of last year’s upward fast ride.

Recall that we said that was a 16% chance of seeing the Dow Jones Industrials drop on 5 out of 7 trading days, if we first assumed that each up-day probability was 50%. But per the chart above, if we see these 5 down-days (out of 7 trading days) we can instead better inform ourselves that we are more likely in a period that is not characterized with a daily 50/50 chance of going up/down. So instead of that 30% likelihood level afforded to a case where we have a 50% up-day probability, we instead suggest that 2014’s YTD performance has a higher 39% likelihood level of being from an underlying slight down-streak phase characterized with only about 40% probability of being up on any given day.


Previous Post

Market Commentary: Averages Continue to Climb Higher, Small Caps Up Plus 1%

Next Post

Market Commentary: Small Caps Close Close To 2% Gains, Time For A Correction?

Related Posts

Bitcoin Flirts With $24K, How High Will It Go?
Economics

Bitcoin Flirts With $24K, How High Will It Go?

by John Wanguba
February 3, 2023
Venezuela's PDVSA Toughens Oil Prepayment Terms
Business

Venezuela’s PDVSA Toughens Oil Prepayment Terms

by John Wanguba
February 2, 2023
German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears
Economics

German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears

by John Wanguba
February 2, 2023
Judge Dismisses Proposed Class-Action Suit Claiming Coinbase Securities Sales
Business

Judge Dismisses Proposed Class-Action Suit Claiming Coinbase Securities Sales

by John Wanguba
February 2, 2023
Aesop Targeted In $2bn Bidding War Between French Groups
Business

Aesop Targeted In $2bn Bidding War Between French Groups

by John Wanguba
February 1, 2023
Next Post

Market Commentary: Small Caps Close Close To 2% Gains, Time For A Correction?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis markets Metaverse mining NFT nonfungible tokens oil market price analysis recession regulation Russia technology Tesla the UK the US Twitter

Archives

  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Bitcoin Flirts With $24K, How High Will It Go?
  • Venezuela’s PDVSA Toughens Oil Prepayment Terms
  • German Economy Unexpectedly Contracts In Q4, Renewing Recession Fears

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish