Scale-free tails in Colombian financial indexes: A primer

Carlos León

Borradores de Economia from Banco de la Republica de Colombia

Abstract: A maximum likelihood method for estimating the power-law exponent verifies that the positive and negative tails of the Colombian stock market index (IGBC) and the Colombian peso exchange rate (TRM) approximate a scale-free distribution, whereas none of the heavy tails of a local sovereign securities index (IDXTES) are a plausible case for such distribution. Results also (i) support critiques regarding the flaws of ordinary least squares estimation methods for scale-free distributions; (ii) question the validity of Zipf’s law; (iii) suggest that IGBC and TRM display the scale-free nature documented as a stylized fact of financial returns, and that they may be following a gradually truncated Lévy flight; and (iv) suggest that local financial markets are self-organized systems.

Keywords: Scale-free; Power-law; Zipf’s law; Financial returns. (search for similar items in EconPapers)
JEL-codes: C46 C58 G32 (search for similar items in EconPapers)
Pages: 18
Date: 2014-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://doi.org/10.32468/be.812 (application/pdf)

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Working Paper: Scale-free tails in Colombian financial indexes: a primer (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:812

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