AIM UK

[ls7550]

RE: Dividend Yield based relative price measure

Over the last couple of days I've taken the standard deviation based yield measures quite a bit further.

Pretty heavy going to describe here, but clearly there is a bias towards larger downside price moves (high yields) than normal form would suggest. There are a few possible reasons for this, one of which is as a consequence of how a 50% decline requires a 100% subsequent gain to get back to break-even.

Adjusting for that down 50 up 100 type effect indicates a much more normal distribution. Which in turn means that I can measure how far adrift from normal distributions things are at any one time.

For example preliminary observations are that we are overdue for at least one year of a 1% higher yield than that of the present yield level (which perhaps suggests that lower lows have yet to occur), but not particularly excessively lower price levels.

Of course non-normal deviations can occur and prolong over extended periods of time, however my next intent is to scan across a range of such potentials and perhaps use the overall average as an indicator.

If this works out then potentially this could both indicate the more likely price direction and durations at or around a particular price level in order to rebalance or remain within normal form distributions. Deviations from that might further indicate just how far the elastic band effect has been stretched (or otherwise).

It could also serve to identify relatively low and high price levels and be used as a forward investment return estimator (form of VLAP type measure).

Something to occupy myself with during these cool, dark (buy getting lighter) evenings.