Professor Zipf goes to Wall Street

Yannick Malevergne, Pedro Santa-Clara and Didier Sornette

No 15295, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The heavy-tailed distribution of firm sizes first discovered by Zipf (1949) is one of the best established empirical facts in economics. We show that it has strong implications for asset pricing. Due to the concentration of the market portfolio when the distribution of the capitalization of firms is sufficiently heavy-tailed, an additional risk factor generically appears even for very large economies. Our two-factor model is as successful empirically as the three-factor Fama-French model.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-rmg
Note: AP
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Citations: View citations in EconPapers (13)

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