Carpenter Analytix

 Cross-Sectional Analysis

Tail Skew


Time Series.  In bull market, the positive tail is generally larger than the negative tail.  In bear market, both expand, but the negative tail is larger.  Both of these behaviors are apparent in the bull-to-bear-to-bull transitions of the past five years.



The P-Tail path (red) stays higher than the N-Tail path (blue) continuously through 2005, 2006 and the first half of 2007.  Then in August 07, the blue path suddenly climbed sharply, exceeding the red.  At that point, the bear market is on.




The net difference between the P-Tail and N-Tail paths is the Tail Skew.  It runs reliably positive through the bull market, and negative (mostly) through the bear market.  It often (but not always) tops or bottoms ahead of the market at major turns.