2020 Stock Market Crash
Contents
Summary
Between the 19th of February, 2020, and the 23rd of March, 2020, the S&P500 (^GSPC) fell from 3,386.15 to 2,237.40, using adjusted closing prices. It subsequently climbed back to 3,276.02 on the 22nd of July, 2020. Some people seem to think it will keep going. I expect a massive crash.
To predict the upcoming (?) 2020 stock market crash, I propose examining the market using three techniques:
- Historical crash analysis
- Price-to-earnings (or revenue, etc.) analysis that attempts to factor defaults
- Extrapolating based on the market-to-economy relationship
I could also employ a pure chartist approach, perhaps to give the counterfactual.
S&P 500 data
As much as I love the Dow, it accounts for about 25% of the economy, whereas the S&P500 accounts for around 80%. So I'll likely use the S&P500. I'll download both from Yahoo:
- https://finance.yahoo.com/quote/%5EGSPC/history?period1=157766400&period2=1595548800&interval=1d&filter=history&frequency=1d
- https://finance.yahoo.com/quote/%5EDJI/history?period1=157766400&period2=1595548800&interval=1d&filter=history&frequency=1d
COMPUSTAT data
COMPUSTAT updates its fundamentals quarterly and monthly security files daily. I did a pull of the entire fundamentals quarterly database from 2015-01 to 2020-07. It has close prices, as well as highs and lows. I pulled close, as averaging highs and lows seems like it might be skewed given the context (especially over short time periods).
Historic Crashes
Data before the 1980s probably isn't useful. It was a different world back then, both in terms of globalization and in terms of how stock markets worked. So, I'll start with the 1987 crash and go forward from there. I'm going to suggest three classes of crash, like hurricanes:
| Class | Description |
|---|---|
| 1 | Flash crashes and other short-term market anomalies |
| 2 | Short to medium term economic disturbances that are limited to a sector |
| 3 | Economic crisis |
My starting list comes from a list of stock market crashes.
Using the largest decline on the Dow of the year (except for 1994) as the crash day gives: Result(Copy to clipboard)
| Event | Start Year | Class | Largest SingleDay | Date | Notes |
|---|---|---|---|---|---|
| Black Monday | 1987 | 3 | -22.60% | 10/19/1987 | A -3.8% in 3 days and an -8% follows a week later. Preceeded by a -4.6% 3 days earlier, and a -3.8% 2 days before that. |
| Early 90s recession | 1990 | 2 | -3.30% | 8/6/1990 | It plummets even more on Nov 15th of 1991, with a 3.8% |
| Part II of the early 90s | 1994 | 2 | -2.40% | 2/4/1994 | Almost the same drop on Nov 22nd (actually slightly larger), later in the year |
| Dot Com Crash | 2000 | 3 | -5.70% | 4/14/2000 | A -3.7% five weeks earlier |
| Financial crisis | 2007 | 2 | -3.30% | 2/27/2007 | Lot of volatility later in the year |
| Financial crisis II | 2008 | 3 | -7.90% | 10/15/2008 | Series of ~4% drops in Sept and then some 5-6% ones in Oct/Nov. |
| 2010 Flash Crash | 2010 | 1 | -3.60% | 5/20/2010 | Were -3.2% on 6th May and on 4th June |
| Aug 2011 Fall | 2011 | 1 | -5.50% | 8/8/2011 | First drop was on 4th Aug (-4.3%), then 8th, then 10th (-4.6%). Other bid declines in Sept and Nov. |
| 2015–16 stock market selloff | 2015 | 1 | -3.60% | 8/24/2015 | Was a -3.1% 3 days earlier and a -2.8% a week later |
| Asian Contagion | 1997 | 1 | -7.2% | 10/27/1997 | Had been a 3.1% decline in Aug |
| 1998 Bear Market | 1998 | 2 | -6.40% | 8/31/1998 | Was a -4.2% 4 days earlier, a a -3.4% on the 4th before that. It was also followed by a -3.2% on the 10th Sept. |
| Friday 13th Mini-crash | 1989 | 1 | -6.90% | 10/13/1989 | Appears isolated |
Data driven approach
Identify crashes as using the largest single-day declines on the DJIA:
| Date | Adj Close | Volume | SingleDayChange |
|---|---|---|---|
| 10/19/1987 | 1738.73999 | 87230000 | -22.6% |
| 10/26/1987 | 1793.930054 | 35420000 | -8.0% |
| 1/8/1988 | 1911.310059 | 27440000 | -6.9% |
| 10/13/1989 | 2569.26001 | 37620000 | -6.9% |
| 10/27/1997 | 7161.200195 | 91830000 | -7.2% |
| 8/31/1998 | 7539.069824 | 117890000 | -6.4% |
| 4/14/2000 | 10305.76953 | 267580000 | -5.7% |
| 9/17/2001 | 8920.700195 | 565600000 | -7.1% |
| 9/29/2008 | 10365.4502 | 385940000 | -7.0% |
| 10/7/2008 | 9447.110352 | 362520000 | -5.1% |
| 10/9/2008 | 8579.19043 | 436740000 | -7.3% |
| 10/15/2008 | 8577.910156 | 374350000 | -7.9% |
| 10/22/2008 | 8519.209961 | 348840000 | -5.7% |
| 11/5/2008 | 9139.269531 | 264640000 | -5.0% |
| 11/19/2008 | 7997.279785 | 350470000 | -5.1% |
| 11/20/2008 | 7552.290039 | 528130000 | -5.6% |
| 12/1/2008 | 8149.089844 | 321010000 | -7.7% |
| 8/8/2011 | 10809.84961 | 479980000 | -5.5% |
| 3/9/2020 | 23851.01953 | 750430000 | -7.8% |
| 3/11/2020 | 23553.2207 | 663960000 | -5.9% |
| 3/12/2020 | 21200.61914 | 908260000 | -10.0% |
| 3/16/2020 | 20188.51953 | 770130000 | -12.9% |
| 3/18/2020 | 19898.91992 | 871360000 | -6.3% |
| 6/11/2020 | 25128.16992 | 647780000 | -6.9% |
Grouping them using 6-month windows gives 9 crashes:
- 1987/1988: 3 obs (including largest)
- 1989: 1 obs
- 1997: 1 obs
- 1998: 1 obs
- 2000: 1 obs
- 2001: 1 obs
- 2008: 9 obs
- 2011: 1 obs
- 2020: 6 obs (and counting, including second and third largest)
Scripts and Analysis
The SQL script Analysis.sql is in E:\projects\stockmarket, as are the source files.
The dbase is stockmarket, and is loaded on mother. It's source files are in Bulk\stockmarket.
