Inverse Statistics in Economics : The gain-loss asymmetry

Details Inverse Statistics in Economics : The gain-loss asymmetry Inverse Statistics in Economics : The gain-loss asymmetry

2002-11-02

arxiv.org/abs/cond-mat/0211039v1

Physica A 324, 338 (2003).

Physics

Condensed Matter

Soft Condensed Matter

Latex, 6 pages, 3 figures

Scientific paper

10.1016/S0378-4371(02)01884-8

Inverse statistics in economics is considered. We argue that the natural candidate for such statistics is the investment horizons distribution. This distribution of waiting times needed to achieve a predefined level of return is obtained from (often detrended) historic asset prices. Such a distribution typically goes through a maximum at a time called the {\em optimal investment horizon}, $\tau^*_\rho$, since this defines the most likely waiting time for obtaining a given return $\rho$. By considering equal positive and negative levels of return, we report on a quantitative gain-loss asymmetry most pronounced for short horizons. It is argued that this asymmetry reflects the market dynamics and we speculate over the origin of this asymmetry.

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