IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v344y2004i1p227-235.html
   My bibliography  Save this article

Exponential distribution of financial returns at mesoscopic time lags: a new stylized fact

Author

Listed:
  • Silva, A. Christian
  • Prange, Richard E.
  • Yakovenko, Victor M.

Abstract

We study the probability distribution of stock returns at mesoscopic time lags (return horizons) ranging from about an hour to about a month. While at shorter microscopic time lags the distribution has power-law tails, for mesoscopic times the bulk of the distribution (more than 99% of the probability) follows an exponential law. The slope of the exponential function is determined by the variance of returns, which increases proportionally to the time lag. At longer times, the exponential law continuously evolves into Gaussian distribution. The exponential-to-Gaussian crossover is well described by the analytical solution of the Heston model with stochastic volatility.

Suggested Citation

  • Silva, A. Christian & Prange, Richard E. & Yakovenko, Victor M., 2004. "Exponential distribution of financial returns at mesoscopic time lags: a new stylized fact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 227-235.
  • Handle: RePEc:eee:phsmap:v:344:y:2004:i:1:p:227-235
    DOI: 10.1016/j.physa.2004.06.122
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437104009409
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    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:eee:phsmap:v:344:y:2004:i:1:p:227-235. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.