Friday, July 28, 2006

Interesting measures of risk & return on the Nifty

Kaushik Gala of Galatime has put a nice article on reading the movements of the Nifty on any given day. Here are some of the inferences:

  • On any given day, the change in Nifty will range from -1.6% to +1.6%, with a 68% probability. Thus, a 1% move is either direction is random, in the grand scheme of things.
  • The average intraday range is ~2% with std-dev of 1.5%; thus, what might seem like a very volatile day may not really be so.
  • If we separate UP & DOWN days, we realize that even a 2% move is not beyond normal expectations.

Read the full article here. It will be interesting to know whether these stats have any predictive value? Or more importantly, can one use such data points to predict returns?

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