Inverse Cubic Law for the Probability Distribution of Stock Price Variations

Details Inverse Cubic Law for the Probability Distribution of Stock Price Variations Inverse Cubic Law for the Probability Distribution of Stock Price Variations

1998-03-31

arxiv.org/abs/cond-mat/9803374v3

Eur. Phys. J. B (Rapid Note), 3 (1998) 139

Physics

Condensed Matter

Statistical Mechanics

5 pages, 4 figures, RevTex 2 figures added

Scientific paper

10.1007/s100510050292

The probability distribution of stock price changes is studied by analyzing a database (the Trades and Quotes Database) documenting every trade for all stocks in three major US stock markets, for the two year period Jan 1994 -- Dec 1995. A sample of 40 million data points is extracted, which is substantially larger than studied hitherto. We find an asymptotic power-law behavior for the cumulative distribution with an exponent alpha approximately 3, well outside the Levy regime 0< alpha <2.

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