CED model for asset returns and fractal market hypothesis

S. T. Rachev, A. Weron, R. Weron

Research output: Contribution to journalArticle

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Abstract

A new general model for asset returns is studied in the framework of the Fractal Market Hypothesis (FMH). To accommodate markets with arbitrage opportunities, it concerns capital market systems in which the Conditionally Exponential Dependence (CED) property can be attached to each investor on the market. Employing the limit theorem for the CED systems, the universal characteristics for the distribution of asset returns are derived. This explains the special role of the Weibull distribution in modeling of global asset returns for market with no arbitrage and the two-power laws property of the density of global returns, evident in the empirical data. Finally, the link with two-parameter Pareto distributions is established.

Original languageEnglish
Pages (from-to)23-36
Number of pages14
JournalMathematical and Computer Modelling
Volume29
Issue number10-12
DOIs
StatePublished - Jan 1 1999

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Keywords

  • Arbitrage
  • Asset returns
  • CED model
  • Financial modeling
  • Fractal market hypothesis
  • Two-parameter Pareto distributions
  • Weibull distribution

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