Inverse Cubic Law for the Probability Distribution of Stock Price Variations
Abstract
The probability distribution of a single stock is studied by analyzing a database (the Trades and Quotes Database) documenting all the trades in the three major US stock markets, for the entire two year period Jan 1994 - Dec 1995. A sample of 40 million data points are extracted which is much larger than studied hitherto. A power law asymptotic behavior is observed, with an exponent alpha approximately 3 for the cumulative distribution, which is well outside the Levy regime (0 <alpha < 2).Keywords
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