Variety of Stock Returns in Normal and Extreme Market Days: The August 1998 Crisis

TL;DR

This paper examines the behavior of stock return variety during normal and extreme market days, specifically around the August 1998 crash, revealing localized spikes at market open and close.

Contribution

It extends the analysis of stock return variety to intraday data and highlights its behavior during a major market crash.

Findings

Variety shows significant spikes at market open and close.

Statistical properties of variety are consistent across daily and intraday data.

Largest changes in variety are localized at market opening and closing.

Abstract

We investigate the recently introduced variety of a set of stock returns traded in a financial market. This investigation is done by considering daily and intraday time horizons in a 15-day time period centered at the August 31st, 1998 crash of the S&P500 index. All the stocks traded at the NYSE during that period are considered in the present analysis. We show that the statistical properties of the variety observed in analyses of daily returns also hold for intraday returns. In particular the largest changes of the variety of the return distribution turns out to be most localized at the opening or (to a less degree) at the closing of the market.