Unless I'm missing something, the only thing you've demonstrated so far is that the value weighted one is more volatile than the price weighted one. The value weighted will also drop 2% on a 1% change in each of its 2 components in the above example, and the price weighted one will drop 1%. That doesn't demonstrate that the price weighted one has a downward bias, only that its delta is less than the delta on the value weighted one given an equivalent price change. This is the same as that example that if something goes up by 10 from 100, it has to drop by 11 from 110 to have the same percent effect. Which means nothing if your entry is 100, since a 10 point move in either direction is 10% from 100, and as far as your p/l is concerned, the entry, not where it went at some point in between, is your fixed point of reference. So, what am I missing?
It does no such thing. If you are talking what I am talking. If one day the S&P goes up/down 1%, the Dow might go up say 1.2%. Another day the S&P percentage-wise might move a little more. Happens all the time. Now the Nasdaq and R2K are higher beta movers so their percentage moves are not (most of the time) in line with S&P/Dow.
The Leverage effect has been widely cited in academia for the relationship between price and volatility. But according to a paper from MIT researchers, the leverage effect doesn't matter. http://jasminah.com/Papers/Leverage2.pdf "One of the most enduring empirical regularities in equity markets is the inverse relationship between stock prices and volatility, first documented by Black (1976) who attributed it to the effects of leverage. As a companyâs stock price declines, it becomes more highly leveraged given a fixed level of debt outstanding, and this increase in leverage induces a higher equity-return volatility. In a sample of all-equity-financed companies from January 1972 to December 2008, we find that the leverage effect is just as strong if not stronger, implying that the inverse relationship between price and volatility is not based on leverage, but is more likely driven by time-varying risk premia or cognitive mechanisms of risk perception. "
The specialist/market maker racing to cover his shorts with minimal participation. As a by-product he's cleaning out hard stops to replenish inventory.
Colyn.Rosenthal Registered: Jun 2011 Posts: 49 09-02-11 12:27 PM -------------------------------------------------------------------------------- Quote from KDASFTG: "Fear is a much stronger emotion than Greed". -------------------------------------------------------------------------------- +1 My mentor called this "Market Gravity"!
============== Mr 1abc; a]Several reasons; i agree as the elitetraders said, bear market{200dma says bear/ sell}, & market gravity, since markets tend to reflect a slice of life.Bull trends dont red[sell] candle much. b]Another slice of life; plane crashes , towers/ falling tend to be much faster than plane takeoffs/towers building[9-11 was already in a bear market]. A early bull trend[on 9-11] would have likely ignored that incident c] Lots of technical/fundamental/fund reasons why ; not related to [a] or[ b] .Not really even panic selling although some sell that way.LOL. Its planned selling; C is still, actually still below 5.00[10 for 1 stock split].BAC has closed there[below$5] on monthly candles. Who knows maybe Warren can turn it around, Country WideMortgage & all They used to disclose stock splits..................................................