SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

Appendix 3: Extreme Days
The analysis in this memo established that proportion of total volatility attributable to the
last half hour of the day was high during the third and fourth quarters of 2008. To further
investigate this phenomenon, we isolated days within this six month period that had
extreme volatility. We found that during that period of time, fourteen of the sixteen
largest end-of-day return events occurred in October and November, including four that
occurred between October 23 and October 29, and seven that occurred between
November 13 and November 21. Note that returns at the end of the day on high volatility
days were both positive and negative. The following table reports the sixteen days
between July 2008 and December 2008 for which the absolute value of the return on the
S&P 500 index, during the last half hour of the trading day, was greater than two percent.
The table also reports the return and normalized variance for S&P 500 Futures in the last
half hour of the day.
October 29, 2008
Table 1
Index Return Futures Return Normalized
Date
3:30-4:00 3:30-4:00 Variance
October 29, 2008 -4.13% -4.26% 9.32
November 21, 2008 3.40% 3.16% 4.62
November 14, 2008 -3.38% -3.49% 6.83
October 28, 2008 3.33% 3.30% 4.79
October 13, 2008 3.16% 3.11% 7.94
October 8, 2008 -3.16% -3.28% 3.34
October 15, 2008 -3.11% -2.84% 7.30
October 27, 2008 -3.00% -2.76% 5.79
November 13, 2008 2.63% 2.64% 2.62
October 23, 2008 2.62% 2.94% 3.85
November 20, 2008 -2.56% -2.72% 3.76
November 18, 2008 2.27% 2.08% 3.99
September 17, 2008 -2.18% -2.17% 5.74
December 1, 2008 -2.12% -2.10% 5.33
November 19, 2008 -2.08% -1.76% 4.00
November 17, 2008 -2.04% -2.08% 5.14
Of all the days in the last two quarters of 2008, October 29 stands out in terms of
abnormal activity at the end of the trading day. As reported in Table 1, this was the only
day on which the absolute returns on the S&P 500 index and on the S&P 500 index
futures between 3:30 and 4:00 exceeded four percent. In addition, the normalized
variance measure—equal to 2.42 on average during the fourth quarter of 2008—was
equal to 9.32 on this date. In other words, end-of-day volatility on October 29 was high,
not only compared to the average end-of-day, but also compared to volatility earlier that
day.
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DRAFT: Produced by OEA
SEC_OEA_FCIC_001818