Power law in tails of bourse volatility evidence from India

Title

Power law in tails of bourse volatility evidence from India

Creator

Ghosh B.; Krishna M.C.

Description

Inverse cubic law has been an established Econophysics law. However, it has been only carried out on the distribution tails of the log returns of different asset classes (stocks, commodities, etc.). Financial Reynolds number, an Econophysics proxy for bourse volatility has been tested here with Hill estimator to find similar outcome. The Tail exponent or ? ? 3, is found to be well outside the Levy regime (0 < ? < 2). This confirms that asymptotic decay pattern for the cumulative distribution in fat tails following inverse cubic law. Hence, volatility like stock returns also follow inverse cubic law, thus stay way outside the Levy regime. This piece of work finds the volatility proxy (econophysical) to be following asymptotic decay with tail exponent or ? ? 3, or, in simple terms, inverse cubic law. Risk (volatility proxy) and return (log returns) being two inseparable components of quantitative finance have been found to follow the similar law as well. Hence, inverse cubic law truly becomes universal in quantitative finance. Bikramaditya Ghosh, M. C. Krishna, 2019.

Source

Investment Management and Financial Innovations, Vol-16, No. 1, pp. 291-298.

Date

2019-01-01

Publisher

LLC CPC Business Perspectives

Subject

Econophysics; Hill estimator; Levy flights

Coverage

Ghosh B., Institute of Management, Christ University, Bangalore, India; Krishna M.C., Institute of Management, Christ University, Bangalore, India

Rights

All Open Access; Gold Open Access

Relation

ISSN: 18104967

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.21511/imfi.16(1).2019.23

https://www.scopus.com/inward/record.uri?eid=2-s2.0-85063749518&doi=10.21511%2fimfi.16%281%29.2019.23&partnerID=40&md5=34a2acb0dab2c8ed1fd17ecce0d4fc90