Inverse Cubic Law for the Probability Distribution of Stock Price Variations

1998/03/31 by Parameswaran Gopikrishnan, Martin Meyer, Luis A Nunes Amaral +1 · 3 citations
Physics and Astronomy · Economics, Econometrics and Finance · #cond-mat.stat-mech #q-fin.ST

paper · pdf · doi:10.1007/s100510050292

published as Eur. Phys. J. B (Rapid Note), 3 (1998) 139 · 5 pages, 4 figures, RevTex 2 figures added

arxiv created 1998/05/11 · arxiv updated 2009/11/30

Abstract

The probability distribution of stock price changes is studied by analyzing a database (the Trades and Quotes Database) documenting every trade for all stocks in three major US stock markets, for the two year period Jan 1994 -- Dec 1995. A sample of 40 million data points is extracted, which is substantially larger than studied hitherto. We find an asymptotic power-law behavior for the cumulative distribution with an exponent alpha approximately 3, well outside the Levy regime 0< alpha <2.

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