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Regensburg 2010 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 21: Financial Markets and Risk Management II

SOE 21.1: Talk

Thursday, March 25, 2010, 10:15–10:45, H46

Power Law Distribution in High Frequency Financial Data? - An Econometric Analysis — •Lora Todorova1 and Bodo Vogt21Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management, P.O. Box 4120, D-39016 Magdeburg, Germany — 2Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management, P.O. Box 4120, D-39016 Magdeburg, Germany

Power law distributions are very common in natural sciences. We analyze high frequency financial data from XETRA and the NYSE using maximum likelihood estimation and the Kolmogorov-Smirnov goodness-of-fit test to test whether the power law hypothesis holds also for that data. We find that the universality and scale invariance property of power law are violated. Furthermore, the returns of Daimler Chrysler and SAP traded simultaneously on both exchanges follow power law at one exchange but not at the other. These results put some questions on the no-arbitrage condition. Finally, we find that the exponential function provides a better fit for the tails of the sample distraibutions than the power law function.

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