Modeling record-breaking stock prices

DOI10.1016/J.PHYSA.2013.11.001zbMATH Open1402.91970arXiv1307.2048OpenAlexW2011259234MaRDI QIDQ1782591FDOQ1782591

Authors: Gregor Wergen 

Publication date: 20 September 2018

Published in: Physica A (Search for Journal in Brave)

Abstract: We study the statistics of record-breaking events in daily stock prices of 366 stocks from the Standard and Poors 500 stock index. Both the record events in the daily stock prices themselves and the records in the daily returns are discussed. In both cases we try to describe the record statistics of the stock data with simple theoretical models. The daily returns are compared to i.i.d. RV's and the stock prices are modeled using a biased random walk, for which the record statistics are known. These models agree partly with the behavior of the stock data, but we also identify several interesting deviations. Most importantly, the number of records in the stocks appears to be systematically decreased in comparison with the random walk model. Considering the autoregressive AR(1) process, we can predict the record statistics of the daily stock prices more accurately. We also compare the stock data with simulations of the record statistics of the more complicated GARCH(1,1) model, which, in combination with the AR(1) model, gives the best agreement with the observational data. To better understand our findings, we discuss the survival and first-passage times of stock prices on certain intervals and analyze the correlations between the individual record events. After recapitulating some recent results for the record statistics of ensembles of N stocks, we also present some new observations for the weekly distributions of record events.

Full work available at URL: https://arxiv.org/abs/1307.2048

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zbMATH Keywords

random walksautoregressive processesextreme value statisticsrecord statisticsextreme events in financial marketsGARCH-models

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Statistics of extreme values; tail inference (62G32) Statistical methods; risk measures (91G70) Financial applications of other theories (91G80)

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Cited In (4)

• Distribution-free inference in record series
• Interval estimation for proportional reversed hazard family based on lower record values
• Exact and asymptotic properties of δ-records in the linear drift model
• Sharper asset ranking from total drawdown durations

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