IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v14y1966i2p334-340.html
   My bibliography  Save this article

Letter to the Editor—The Distribution of Stock Price Differences: Gaussian After All?

Author

Listed:
  • Josef Brada

    (University of Minnesota)

  • Harry Ernst

    (Tufts University)

  • John Van Tassel

    (Boston College)

Abstract

In this paper the distribution of stock price differences is studied. Starting from Bachelier's hypothesis regarding the independence of stock price changes a model based on price differences taken across transactions, rather than differences obtained across time periods, is investigated. Using this model the distributions of price changes for a sample of 10 stocks were studied. In contrast to the fat tailed, excessively peaked distributions obtained by differencing across time periods, the distributions obtained by differencing across transactions did not have an excessive number of extreme events, although the center classes continued to be overcrowded. As the number of transactions over which the price differences were taken increased from 1 to n where n is equal to the largest number of transactions over which the price has remained unchanged, the distribution of the Δ P 's approached the normal distribution. Thus we conclude that stock price changes are not independent across single transactions, and that stock prices should be differenced across blocks of transactions, rather than time intervals.

Suggested Citation

  • Josef Brada & Harry Ernst & John Van Tassel, 1966. "Letter to the Editor—The Distribution of Stock Price Differences: Gaussian After All?," Operations Research, INFORMS, vol. 14(2), pages 334-340, April.
  • Handle: RePEc:inm:oropre:v:14:y:1966:i:2:p:334-340
    DOI: 10.1287/opre.14.2.334
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.14.2.334
    Download Restriction: no

    File URL: https://libkey.io/10.1287/opre.14.2.334?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maximilian Beikirch & Simon Cramer & Martin Frank & Philipp Otte & Emma Pabich & Torsten Trimborn, 2018. "Simulation of Stylized Facts in Agent-Based Computational Economic Market Models," Papers 1812.02726, arXiv.org, revised Nov 2019.
    2. Simon Cramer & Torsten Trimborn, 2019. "Stylized Facts and Agent-Based Modeling," Papers 1912.02684, arXiv.org.
    3. Aldrich, Eric M. & Lee, Seung, 2018. "Relative spread and price discovery," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 81-98.
    4. Jaramillo-López, Oscar Andrés & Forero-Laverde, Germán & Venegas-Martínez, Francisco, 2020. "Evolución del supuesto de normalidad en finanzas: un análisis epistemológico del tipo Popper-Kuhn ¿Por qué la normalidad no cae en desuso? [Evolution of the assumption of normality in finance: a ep," MPRA Paper 101938, University Library of Munich, Germany.
    5. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:14:y:1966:i:2:p:334-340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.