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Probability of large movements in financial markets

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  • Kitt, Robert
  • Säkki, Maksim
  • Kalda, Jaan

Abstract

Based on empirical financial time series, we show that the “silence-breaking” probability follows a super-universal power law: the probability of observing a large movement is inversely proportional to the length of the on-going low-variability period. Such a scaling law has been previously predicted theoretically [R. Kitt, J. Kalda, Physica A 353 (2005) 480], assuming that the length-distribution of the low-variability periods follows a multi-scaling power law.

Suggested Citation

  • Kitt, Robert & Säkki, Maksim & Kalda, Jaan, 2009. "Probability of large movements in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(23), pages 4838-4844.
    • Handle: RePEc:eee:phsmap:v:388:y:2009:i:23:p:4838-4844
    DOI: 10.1016/j.physa.2009.07.027
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    References listed on IDEAS

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    1. Mantegna,Rosario N. & Stanley,H. Eugene, 2007. "Introduction to Econophysics," Cambridge Books, Cambridge University Press, number 9780521039871, September.
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    Cited by:

    1. Andria, Joseph & di Tollo, Giacomo & Kalda, Jaan, 2022. "The predictive power of power-laws: An empirical time-arrow based investigation," Chaos, Solitons & Fractals, Elsevier, vol. 162(C).
    2. Hernández, Juan Antonio & Benito, Rosa Marı´a & Losada, Juan Carlos, 2012. "An adaptive stochastic model for financial markets," Chaos, Solitons & Fractals, Elsevier, vol. 45(6), pages 899-908.

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