The Puzzle of Financial Market Distribution Cover Image

The Puzzle of Financial Market Distribution
The Puzzle of Financial Market Distribution

Author(s): Bohumil Stádník
Subject(s): Economy
Published by: Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: Dynamic Financial Market Model; departures from normality; leptokurtic distribution of returns; sharpness, skewness; feedbacks on financial market; price inertia feedback; directional dependence; Markov chain

Summary/Abstract: In this research we economically explain the observed shape of financial market distributions as this question has still not been fully answered. We suggest the explanation using market price directional dependence which can be also used as an additional one to the nowadays popular volatility dependence solutions. Volatility dependence is based on volatility clustering and does not cover observations of the departures without volatility clusters behind but in this research we also do explain such cases. The whole methodology is based on the financial system internal description therefore we eliminate the internal structure uncertainty which results from just the output/input system description. We try to identify the processes containing the direction dependence within universal model, discuss their contribution to the measured shape of the distributions, make their complex simulation based on the theory of dynamical systems, try to measure them empirically and outline appropriate mathematical description based on Markov chains.

  • Issue Year: 62/2014
  • Issue No: 07
  • Page Range: 709-727
  • Page Count: 19
  • Language: English