Power law distribution in high frequency financial data? An econometric analysis

Lora Todorova and Bodo Vogt

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 23, 4433-4444

Abstract: Power law distributions are very common in natural sciences. We analyze high frequency financial data from XETRA and the NYSE using maximum likelihood estimation and the Kolmogorov–Smirnov statistic to test whether the power law hypothesis holds also for these data. We find that the universality and scale invariance properties of the power law are violated. Furthermore, the returns of Daimler Chrysler and SAP traded simultaneously on both exchanges follow a power law at one exchange, but not at the other. These results raise some questions about the no-arbitrage condition. Finally, we find that an exponential function provides a better fit for the tails of the sample distributions than a power law function.

Keywords: Power law; High frequency financial data; Universality; Scale invariance; No-arbitrage condition; Exponential distribution (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:23:p:4433-4444

DOI: 10.1016/j.physa.2011.07.035

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