The non-random walk of stock prices: the long-term correlation between signs and sizes

@article{Spada2007TheNW,
title={The non-random walk of stock prices: the long-term correlation between signs and sizes},
author={G. Spada and J. D. Farmer and F. Lillo},
journal={The European Physical Journal B},
year={2007},
volume={64},
pages={607-614}
}

We investigate the random walk of prices by developing a simple model relating the properties of the signs and absolute values of individual price changes to the diffusion rate (volatility) of prices at longer time scales. We show that this benchmark model is unable to reproduce the diffusion properties of real prices. Specifically, we find that for one hour intervals this model consistently over-predicts the volatility of real price series by about 70%, and that this effect becomes stronger as… CONTINUE READING