This article examines the possibility of an unusual change of the security returns, which is defined as 10% changes, by applying recurrent event data technique in survival analysis. The empirical evidences obtained from S&P 500 firms show that the momentum effect has a significantly positive relation with the probability of the acute fluctuations to occur. And the book-to-market factor, which can be seen as a value/growth indicator, is always negatively related to probability of the events. However, the market factor, the size factor, and the liquidity factor provide no additional information to predict the probability. Based on the estimated hazard rate for the market, we find an interesting result that during the bull market, the stock prices rise gradually over time while collapse acutely, and the converse is true when the market is bad.

01. Amihud, Y., and Mendelson, H., 1986. Asset pricing and the bid-ask spread. Journal of Financial Economics 17, 223–249.

02. Basu, S., 1983. The relationship between earnings yield, market value, and return for NYSE common stocks: Further evidence. Journal of Financial Economics 12, 129-156.

03. Banz, R. W., 1981. The relationship between return and market value of common stocks. Journal of Financial Economics 9, 3-18.

04. Black, F., 1972. Capital market equilibrium with restricted borrowing. Journal of Business 45, 444-455.

05. Chan, K. C., and Chen, N. F., 1991. Structural and return characteristics of small and large firms. Journal of Finance 46, 1467-1484.

06. Chan, L. K., Jegadeesh, N., and Lakonishok, J., 1996. Momentum strategies. Journal of Finance 51, 1681–1713.

07. Datar, V. T., Naik, N. Y., and Radcliffe, R., 1998. Liquidity and asset returns: An alternative test. Journal of Financial Markets 1, 203–220.

08. DeBondt, W. F. M., and Thaler, R. H., 1985, Does the stock market overreact, Journal of Finance 40, 793-805.

09. DeBondt, W. F. M., and Thaler, R. H., 1985. Further evidence of investor overreaction and stock market seasonality. Journal of Finance 42, 557-581.

10. Fama, E. F., and French K. R., 1992. The cross-section of expected stock returns. Journal of Finance 47, 427-465.

11. Fama, E. F., and French K. R., 1995. Size and book-to-market factors in earnings and returns. The Journal of Finance 50, 131-155.

12. Fama, E. F., and French K. R., 1996. Multifactor explanations of asset pricing anomalies. Journal of Finance 51, 55-84.

13. Fama, E. F., and French K. R., 2006. The value premium and the CAPM. Journal of Finance 5, 2163-2185.

14. Hougaard, P., 2000. Analysis of multivariate survival data.

15. Jegadeesh, N., 1990. Evidence of predictable behavior of security returns. The Journal of Finance 45, 881-898.

16. Jegadeesh, N., and Titman S., 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance 48, 65-91.

17. Lakonishok, J., Andrei S., and Robert W. V., 1994. Contrarian investment, extrapolation, and risk. Journal of Finance 49, 1541-1578.

18. Lee, C. M. C., and Swaminathan B., 2000. Price momentum and trading volume. Journal of Finance, 5, 2017-2069.

19. Lin, D. Y., Wei, L. J., and Weissfeld, L., 1989. Regression analysis of multivariate incomplete failure time data by modeling marginal distributions. Journal of the American Statistical Association 84, 1065-1073.

20. Lin, D. Y., and Wei, L. J., 1989. The robust inference for the Cox proportional hazards model. Journal of the American Statistical Association 84, 1074-1078.

21. Lintner, J., 1965. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics 47, 13-37.

22. Peña, E. A., Hollander, M., 2004. Models for recurrent events in reliability and survival analysis. Kluwer Academic Publishers, 105-123 (Chapter 6).

23. Peña, E. A., Slate, E. H., and Gonzalez, J. R., 2006. Semiparametric inference for a general class of models for recurrent. Journal of Statistical Planning and Inference 137, 1727 – 1747.

24. Ripatti, S., and Palmgren, J., 2000. Estimation of multivariate frailty models using penalized partial likelihood. Biometrics 56, 1016-1022.

25. Rosenberg, B., Kenneth, R., and Ronald, L., 1985. Persuasive evidence of market inefficiency. Journal of Portfolio Management 11, 9-17.

26. Rouwenhorst, K. G., 1998. International momentum strategies. Journal of Finance 53, 267–284.

27. Sharpe, W. F., 1964. Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance 19, 425-442.

28. Stattman, D., 1980. Book values and stock returns. The Chicago MBA: A Journal of Selected Papers 4, 25-45.

29. Therneau, T. M., and Hamilton, S. A., 1997. rhDNase as an example of recurrent event analysis. Statistics in Medicine 16, 2029-2047.

30. Therneau, T. M., and Grambsch, P. M., 2000. Modeling survival data: extending the Cox model.

31. Rondeau, V., Commenges, D., and Joly, P., 2003. Maximum penalized likelihood estimation in a gamma-frailty model. Lifetime Data Analysis 9, 139–153.

32. Wei, L. J., Lin, D. Y., Weissfeld, L., 1989. Regression analysis of multivariate incomplete failure time data by modeling marginal distributions. Journal of the American Statistical Association 84, 1065-1073.