Presidential inauguration and the stock market

A question asked privately:

After the inauguration of Russian president-elect Dmitry Medvedev, the Russian stock market rose by 200+ basis poins over a single day. Was this a significant reaction?

Let’s look at it numerically. Here’s the daily history of the RTS index, Russia’s primary stock market index:

Average daily change in the index over its entire history was 0.14%; its standard deviation, 2.70%.  So the change in the index on the day of inauguration, 2.24%, was 0.78 standard deviations away from the mean, whereas a “significant” event is often defined as one located at least two standard deviations away from the mean.  For example, in August 1998, after the Russian government defaulted on its bonds and devalued the ruble, there were two days when the stock market fell by more than five standard deviations form the mean.

There’s also another way of looking at it.   As of the end of the inauguration day, the RTS index had 3,164 days of history.  Of all those days, 471 (almost 15%) saw a change greater than that posted on the inauguration day.  In other words, one out of seven trading days was more “significant” than the day of inauguration.

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