A robust finding in this paper is that extreme movements in stock prices and temperature are usually preceded by large average daily movements during the preceding three-day period. This suggests that investors might fashion a market timing strategy, switching from stocks to cash in advance of predicted extreme negative stock returns. In fact, we have been able to simulate market timing strategies that are successful in avoiding nearly eighty percent of the negative extreme move days, yielding a significantly lower volatility of returns.

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“The Clustering of Extreme Movements: Stock Prices and the Weather,” A. Saha, B. Malkiel, A. Grecu, The Journal of Investment Management, 7(1) (2009), 20-35