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Probability of Large Movements in Financial Markets

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  • Robert Kitt
  • Maksim Sakki
  • Jaan Kalda

Abstract

Based on empirical financial time-series, we show that the "silence-breaking" probability follows a super-universal power law: the probability of observing a large movement is inversely proportional to the length of the on-going low-variability period. Such a scaling law has been previously predicted theoretically [R. Kitt, J. Kalda, Physica A 353 (2005) 480], assuming that the length-distribution of the low-variability periods follows a multiscaling power law.

Suggested Citation

  • Robert Kitt & Maksim Sakki & Jaan Kalda, 2008. "Probability of Large Movements in Financial Markets," Papers 0812.4455, arXiv.org, revised Sep 2009.
    • Handle: RePEc:arx:papers:0812.4455
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    Cited by:

    1. Andria, Joseph & di Tollo, Giacomo & Kalda, Jaan, 2022. "The predictive power of power-laws: An empirical time-arrow based investigation," Chaos, Solitons & Fractals, Elsevier, vol. 162(C).
    2. Hernández, Juan Antonio & Benito, Rosa Marı´a & Losada, Juan Carlos, 2012. "An adaptive stochastic model for financial markets," Chaos, Solitons & Fractals, Elsevier, vol. 45(6), pages 899-908.

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