Inverse Cubic Law for the Probability Distribution of Stock Price Variations

H Eugene Stanley; Luis A Nunes Amaral; Martin Meyer; Parameswaran Gopikrishnan

Inverse Cubic Law for the Probability Distribution of Stock Price Variations

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arxiv cond-mat/9803374 v3 pith:DRONZAAO submitted 1998-03-31 cond-mat.stat-mech q-fin.ST

Parameswaran Gopikrishnan , Martin Meyer , Luis A Nunes Amaral , H Eugene Stanley This is my paper · ORCID

classification cond-mat.stat-mechq-fin.ST

keywords distributionstockalphadatabasepriceprobabilitystudiedanalyzing

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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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