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Quantifying stock return distributions in financial markets

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Botta, Federico, Moat, Helen Susannah, Stanley, H. Eugene and Preis, Tobias (2015) Quantifying stock return distributions in financial markets. PLoS One, 10 (9). pp. 1-10. e0135600. doi:10.1371/journal.pone.0135600

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Official URL: http://dx.doi.org/10.1371/journal.pone.0135600

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Abstract

Being able to quantify the probability of large price changes in stock markets is of crucial importance in understanding financial crises that affect the lives of people worldwide. Large changes in stock market prices can arise abruptly, within a matter of minutes, or develop across much longer time scales. Here, we analyze a dataset comprising the stocks forming the Dow Jones Industrial Average at a second by second resolution in the period from January 2008 to July 2010 in order to quantify the distribution of changes in market prices at a range of time scales. We find that the tails of the distributions of logarithmic price changes, or returns, exhibit power law decays for time scales ranging from 300 seconds to 3600 seconds. For larger time scales, we find that the distributions tails exhibit exponential decay. Our findings may inform the development of models of market behavior across varying time scales.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School > Behavioural Science
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Stocks -- Rate of return
Journal or Publication Title: PLoS One
Publisher: Public Library of Science
ISSN: 1932-6203
Official Date: 1 September 2015
Dates:
DateEvent
1 September 2015Published
23 July 2015Accepted
19 May 2015Submitted
Volume: 10
Number: 9
Number of Pages: 10
Page Range: pp. 1-10
Article Number: e0135600
DOI: 10.1371/journal.pone.0135600
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Open Access
Funder: Research Councils UK (RCUK), Engineering and Physical Sciences Research Council (EPSRC), National Science Foundation (U.S.) (NSF)
Grant number: EP/K039830/1 (RCUK), EP/E501311/1 (EPSRC), 1411158 (NSF), 1452061 (NSF)

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