Why is the Nikkei so much more volatile than the DOW?

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Why is the Nikkei so much more volatile than the DOW?

Postby Browser » Tue Feb 12, 2013 11:42 am

Today the Japan Nikkei stands at 11369, up 216. The DOW stands at 13993, up 22. For a long time, I've noticed that the daily moves, both up and down, in the Nikkei are commonly huge compared to the DOW. If the DOW were up 216 today, all the talking heads would be raving. But a move like that in the Nikkei never gets noticed. Why are the moves in the Nikkei often so large, and why isn't it a big deal to all the market yip yappers?
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. – Jim Barksdale
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby Valuethinker » Tue Feb 12, 2013 1:10 pm

At a guess size and importance to world markets.

Japan is c. 10% world equity market cap, Wall Street is nearly 50%. So the 30 companies in the Dow are a *lot* larger than the ones in the Nikkei, potentially.

Also the Dow is price weighted not market cap weighted. A quite unique index. Bellweather to the world.
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby exeunt » Tue Feb 12, 2013 2:47 pm

The yen has been depreciating rapidly and the Nikkei rising because of the Prime Minister Shinzo Abe's push to unleash massive fiscal stimulus and the Bank of Japan's push to boost inflation and weaken the currency.
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby 2retire » Tue Feb 12, 2013 3:21 pm

You know, I almost posted the same question about a month ago. I keep the Google Finance page open every day and I noticed that Nikkei does seem to have many more days over +/- 1-2%. However, before I posted the question I thought I should actually verify that what I was seeing wasn't just my perception.

I downloaded the daily Nikkei data (from their site) for something like the past three years. I then put the data in Excel and used the FREQUENCY() formula to group the data into buckets between +2% and -2% in 0.1 increments. Much to my surprise, when I graphed the buckets I got a standard bell curve. There were several buckets that tended to have much high number of occurrences, some as high as the number of days when it moved 0%, but overall it was a bell curve.

I'm not much into statistics, but it would be interesting for someone else who is more familiar with statistics to do the analysis and see if I missed anything. At this point, I can only chalk up my feeling that it is more volatile to personal perception.
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby Karamatsu » Wed Feb 13, 2013 10:29 pm

It's an interesting question. Take a look at this [urlhttp://finance.yahoo.com/q/ta?s=^N225&t=1m&l=on&z=l&q=l&p=&a=&c=^DJI]graph[/url] for the past month, for example. Compared to the Dow, the Nikkei has been pretty violent. The main things I can think of off the top of my head are lower share volume (thinly traded stocks often have volatile graphs, too), fluctuations in the yen may be amplifying the dollar-valued effect of otherwise normal price movements, and perhaps lots of recent buying by mutual funds and speculators. There may also be issues with the way the indexes are calculated.

Never noticed it before...
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby livesoft » Wed Feb 13, 2013 11:11 pm

The US stock markets had a remarkably low-volatility previous year, so I wonder what your "For a long time" means.

Japan is in a recession. It has replaced its prime minister. The PM is trying to get a non-wimp in as head of BoJ in order to increase inflation or at least move away from deflation. The Japanese themselves would prefer deflation since it makes the pensions of the older folks and the salaries of the younger folks go further. They are pretty much in a death spiral as far as the economy goes. So any bit of news pushes things one way or the other. No one really knows what will happen. This uncertainty leads to volatility.
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Re: Why is the Nikkei so much more volatile than the DOW?

Postby bpp » Thu Feb 14, 2013 1:33 am

Browser wrote: If the DOW were up 216 today, all the talking heads would be raving. But a move like that in the Nikkei never gets noticed. Why are the moves in the Nikkei often so large, and why isn't it a big deal to all the market yip yappers?


I assume you are not watching/reading Japanese news, where the moves in the Nikkei get plenty of notice (I can't count the number of times it has made the front-page headlines in the past couple of months), and moves in the Dow are rarely commented on (though the DOW and the FTSE numbers do get duly listed in the sidebar at nikkei.com, for those who are really interested). If you are using US news sources, it is only natural that they are more interested in the Dow than the Nikkei, I think.

Valuethinker wrote:Also the Dow is price weighted not market cap weighted.


The Nikkei is also price weighted. Though it holds many more stocks than the Dow (225 as opposed to 30), so all else being equal one might expect it to be less volatile.

Karamatsu wrote:It's an interesting question. Take a look at this [url=http://finance.yahoo.com/q/ta?s=^N225&t=1m&l=on&z=l&q=l&p=&a=&c=^DJI]graph[/url] for the past month, for example. Compared to the Dow, the Nikkei has been pretty violent.


I think the Nikkei is extra volatile right now because the yen is right now, in response to the start of "Abenomics" since last December. (Or rather, the jawboning about Abenomics, since the government hasn't actually done much yet besides state intentions and get personnel appointments lined up.) The Nikkei is more sensitive to the value of the yen than the Dow is to the value of the dollar, I believe. ...Which should increase the volatility of the Nikkei in general, I suppose.
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