principle, suppose that the Dow Jones Industrial Average went up one day by 50 points from 10,000 to 10,050. Is this a "large" move? Looking at annual, con- tinuously compounded rates on the Dow Jones portfolio, we find that the annual standard deviation in postwar years has averaged about 16%. Under the assumption that the return on the Dow Jones portfolio is lognormally distributed and that returns between successive subperiods are uncorrelated, the one-day distribution has a standard deviation (based on 250 trading days per year) of   (day) (year) 1/250 .16 .0101 1.01% per day 250   Applying this to the opening level of the Dow Jones on the trading day, 10,000, we find that the daily standard deviation of the Dow Jones index is 10,000 .0101 101 points per day. If the daily rate on the Dow Jones portfolio is approximately normal, we know that in one day out of three, the Dow Jones will move by more than 1% either way. Thus a move of 50 points would hardly be an unusual event.     CONCEPT C H E C K ☞ QUESTION A.2 Look again at Table 6A.1. Are you surprised that the minimum rates of return are less negative for more diversified portfolios? Is your explanation consistent with the behavior of the samples max- imum rates of return?       SUMMARY: APPENDIX A