Model for Non-Gaussian Intraday Stock Returns

Gerig, Austin, Vicente, Javier and Fuentes, Miguel (2009) Model for Non-Gaussian Intraday Stock Returns. Physical Review E (Statistical, Nonlinear, and Soft Matter Physics), 80 (6). 065102(R).

Abstract

Stock prices are known to exhibit non-Gaussian dynamics, and there is much interest in understanding the origin of this behavior. Here, we present a model that explains the shape and scaling of the distribution of intraday stock price fluctuations (called intraday returns) and verify the model using a large database for several stocks traded on the London Stock Exchange. We provide evidence that the return distribution for these stocks is non-Gaussian and similar in shape and that the distribution appears stable over intraday time scales. We explain these results by assuming the volatility of returns is constant intraday but varies over longer periods such that its inverse square follows a gamma distribution. This produces returns that are Student distributed for intraday time scales. The predicted results show excellent agreement with the data for all stocks in our study and over all regions of the return distribution.

Item Type: Article
Keywords: Models; Stocks and Shares; Stock Exchange
Subject(s): Complexity
Centre: CABDyN Complexity Centre
Date Deposited: 11 Feb 2012 21:53
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/2727

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