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Our Autumn of Discontent

By Salil Mehta, statistician and blogger at (Statistical Ideas)

NEW YORK (TheStreet) -- The fall months may be some of the riskiest months in the market. After all, most of the infamous 10, worst one-day market panics on the Dow, have occurred near October. But a ranked listing of only 10 is a freakishly small sample of extreme events from which to draw any statistical significance.

The history of the Dow goes back to the late 19th century. And with enough data, we can better understand the frequency of when severe market drops occur. We know that Mark Twain once said at about the same time the Dow started, "It is not worth while to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible."

There is a statistically strong historical repetition of market crashes, occurring in the months near October. But so too do crashes more often occur on Mondays, for any month of the year. Of the 29,400 trading days in the history of the Dow, we looked at the worst 294 (or 1%) of them. In order to qualify for this club of the worst 1% days, a daily price drop of at least 3.2% was needed. And while we expect five of these worst 1% days biennially, the most recent one we have had was November 2011.

Here is the distribution of those 294 days by month, in red on the chart. As a statistical alternate, we also show, in light green, the distribution of 294 days evenly spread across 12 months.

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