Scaling in stock market data: stable laws and beyond
AbstractThe concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications to market data we indicate the shortcomings of such models and describe the truncated Levy flight as an alternative model for price movements. Furthermore, studying the dependence structure of the price increments shows that while their autocorrelation function decreases rapidly to zero, the correlation of their squares and absolute values shows a slow power law decay, indicating persistence in the scale of fluctuations, a property which can be related to the anomalous scaling of the kurtosis. In the last section we review, in the light of these empirical facts, recent attempts to draw analogies between scaling in financial markets and in turbulent flows.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number cond-mat/9705087.
Date of creation: May 1997
Date of revision:
Publication status: Published in Scale Invariance and Beyond (proceedings of the CNRS Workshop on Scale Invariance, Les Houches, March 1997)
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Web page: http://arxiv.org/
Other versions of this item:
- Rama Cont & Marc Potters & Jean-Philippe Bouchaud, 1997. "Scaling in stock market data: stable laws and beyond," Science & Finance (CFM) working paper archive 9705087, Science & Finance, Capital Fund Management.
- G1 - Financial Economics - - General Financial Markets
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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