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Professor Zipf goes to Wall Street

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Author Info
Yannick Malevergne
Pedro Santa-Clara
Didier Sornette
Abstract

The heavy-tailed distribution of firm sizes first discovered by Zipf (1949) is one of the best established empirical facts in economics. We show that it has strong implications for asset pricing. Due to the concentration of the market portfolio when the distribution of the capitalization of firms is sufficiently heavy-tailed, an additional risk factor generically appears even for very large economies. Our two-factor model is as successful empirically as the three-factor Fama-French model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15295.

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Date of creation: Aug 2009
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Handle: RePEc:nbr:nberwo:15295

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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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