Exponential distribution of financial returns at mesoscopic time lags: a new stylized fact

A. Christian Silva, Richard E. Prange and Victor Yakovenko

Physica A: Statistical Mechanics and its Applications, 2004, vol. 344, issue 1, 227-235

Abstract: We study the probability distribution of stock returns at mesoscopic time lags (return horizons) ranging from about an hour to about a month. While at shorter microscopic time lags the distribution has power-law tails, for mesoscopic times the bulk of the distribution (more than 99% of the probability) follows an exponential law. The slope of the exponential function is determined by the variance of returns, which increases proportionally to the time lag. At longer times, the exponential law continuously evolves into Gaussian distribution. The exponential-to-Gaussian crossover is well described by the analytical solution of the Heston model with stochastic volatility.

Keywords: Econophysics; Exponential distribution; Stylized facts; Stochastic volatility; Heston model; Stock market returns; Empirical characteristic function (search for similar items in EconPapers)
Date: 2004
References: View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:344:y:2004:i:1:p:227-235

DOI: 10.1016/j.physa.2004.06.122

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