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
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.
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