What would be the largest single day gain the Dow could post? I don’t think there is any actual upper limit… so lets say everything came up right… inflation, jobs, earnings, politics, war, everything. At its current level, what is the largest single day gain we could see? 500 points? 1,000 points? At what level would they (if at all) close down the exchange? What about on the down side, how much could it lose in one day?
Well, let’s look at what has actually happened:
From BBC NEWS | Business | Dow Jones milestones
Confirmed by this: The day in numbers: 12,011.73 - CNN.com
Percentages are more interesting. On one day in October 1987, the Dow plunged about 22%. It was something like 500 points. If it happened today, 22% would be somwhere in the vicinity of 2500 points.
According to Wikipedia, the largest one-day percentage gain was 15.3% in the 1930s. Today, 15% would give somewhere around 1900 points. Big one-day gains seem to happen pretty frequently after big drops, when the bargain hunters come looking.
Here is the information on the “circuit breakers” the NYSE will use in the event of a large drop in the Dow.
I’m sure it’s been done, but you could plot the distribution and calculate probabilities of a given movement.
It’s not normal, as markets have momentum, so it will have heavy tails. I think the Dow moved over 20 standard deviations in one day once; if normally distributed, such an outcome would still be unlikely if the NYMEX was open every day since the big bang, or something ridiculous like that.
This is just my recollection, I could be full of shit.