On the Distribution of Stock Price Differences

Benoît Mandelbrot and Howard M. Taylor
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Howard M. Taylor: Cornell University, Ithaca, New York

Operations Research, 1967, vol. 15, issue 6, 1057-1062

Abstract: Price changes over a fixed number of transactions may have a Gaussian distribution. Price changes over a fixed time period may follow a stable Paretian distribution, whose variance is infinite. Since the number of transactions in any time period is random, the above statements are not necessarily in disagreement. A possible explanation is proposed by Taylob, and then shown by Mandelbrot to be intimately related to an earlier discussion of the specialists' function of ensuring the continuity of the market.

Date: 1967
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