Aqr's Cliff Asness: Ane Time More, Without Feeling

We'll role Mr. Asness' tweet equally the intro:

My latest. As commons there's agency likewise much hype virtually marketplace moves. Admittedly, this is an obvious, pedantic, in addition to repetitive (of other posts past times me in addition to past times others) piece. With that goodness salesmanship I actively encourage you lot to read it!https://t.co/z1loTXS41P

— Clifford Asness (@CliffordAsness) December 19, 2018

From AQR, Dec. 19:

I know that, unfortunately, a large fraction of my blogs autumn into the category of “viewed properly this isn’t that large a deal.” This one, virtually this year’s overall US of America stock marketplace return, is another. Also unfortunate, is how much nosotros require commentary similar this (not merely mine!). This globe is pretty much designed to convince us that we’re ever at DEFCON 1, when v is the agency in addition to 4.5 the mean. 1

There are or then interesting, in addition to maybe fifty-fifty really extreme, things going on this twelvemonth (e.g., breadth of losses across many investments in addition to investment styles). But the overall US of America stock marketplace is non i of them. However, if you, for instance, spotter cable line organisation intelligence likewise much in addition to absorb the headlines (e.g., “it’s the worst Dec since the Great Depression!”, “did you lot run into the POINT drop!”) you’d endure forgiven for thinking the S&P 500 is on a expiry march. So, piece maybe repetitive inward topic in addition to pedantic, those of us repeatedly pointing out the nigh constant exaggerations are, I hope, doing something useful.

This ship service is really unproblematic in addition to short. I’m merely going to hold back at daily returns on the S&P 500 in addition to compare 2018 year-to-date (YTD) to similar length periods over history. 2
 
The YTD annualized daily volatility of the S&P 500 3 equally of Dec 17, 2018 is 16.5%. That puts it at the 66th percentile over history going dorsum to 1928. 4 So, certain it’s higher upwards median, but if that’s your measure for harrowing, you’ve led a rather sheltered life. It’s 29% of the maximum we’ve ever seen over the same length of fourth dimension and, to brand certain the maximum wasn’t a freak occurrence, it’s 43% of the 95th percentile rolling volatility ever observed. That merely ain’t a real large number.

If nosotros hold back at actual returns, 5 2018 YTD is at the 24th percentile versus comparable history. Below average, sure, but could you lot imagine the blaring headline “Freakish twelvemonth that entirely happens i quarter of the time!”

Looking at the drawdown (comparing the endpoint of Dec 17, 2018 to the high betoken inside 2018), it’s at the 22nd percentile. Meaning it’s a worse drawdown than experienced over 78% of the similar length periods (using drawdowns from the pinnacle inside 50 calendar week look-back periods hither in i trial to a greater extent than to piece of occupation into an apples-to-apples comparison). Again, that’s a mildly bad twelvemonth versus history. But, again, that’s also aught to write habitation virtually (or, frankly, to write virtually at all!).

This isn’t exhaustive. There may endure or then stair out or scale that shows 2018 to endure genuinely exceptionally difficult. 6 For instance, equally mentioned above, broadening things globally, in addition to to other property classes similar bonds in addition to commodities, in addition to maybe fifty-fifty to known systematic strategies, probable shows this to endure a to a greater extent than surprisingly bad year. Breadth is probable a bigger outlier than depth. 7....

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