The Market is Almost Never “Normal”

http://newsdoors.blogspot.com/2012/12/the-market-is-almost-never-normal.html

The Market is Almost Never “Normal”

The share price of Apple Corp surprised a lot of people this week with a one-day drop of 37 points, or -6.43%.  Part of why that was a surprise is that over the past year, the standard deviation of Apple’s daily price change has been 1.8%, and so this was a down move which was greater than 3 standard deviations.

Those who have taken a course in statistics may recall “The 68-95-99.7% Rule“.  Simply stated, the rule indicates that for a normal distribution:

68% of all observations should fall within 1 standard deviation of the mean
95% of all observations should fall within 2 standard deviations of the mean
99.7% of all observations should fall within 3 standard deviations of the mean

http://newsdoors.blogspot.com/2012/12/the-market-is-almost-never-normal.html