Scale-free tails in Colombian financial indexes: a primer
AbstractA maximum likelihood method for estimating the power-law exponent verifies that the positive and negative tails of the Colombian stock market index (IGBC) and the Colombian peso exchange rate (TRM) approximate a scale-free distribution, whereas none of the heavy tails of a local sovereign securities index (IDXTES) are a plausible case for such distribution. Results also (i) support critiques regarding the flaws of ordinary least squares estimation methods for scale-free distributions; (ii) question the validity of Zipf’s law; (iii) suggest that IGBC and TRM display the scale-free nature documented as a stylized fact of financial returns, and that they may be following a gradually truncated Lévy flight; and (v) suggest that local financial markets are self-organized systems.
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Bibliographic InfoPaper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 011144.
Date of creation: 07 Mar 2014
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Scale-free; power-law; Zipf’s law; financial returns.;
Other versions of this item:
- Carlos León, 2014. "Scale-free tails in Colombian financial indexes: A primer," Borradores de Economia 812, Banco de la Republica de Colombia.
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-17 (All new papers)
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