NSE Research Initiative Papers
24 Pages Posted: 18 Aug 2009
Date Written: August 17, 2009
The distributions of the first passage time for the S&P CNX Nifty and its 50 constituent stocks are examined. Numerical analysis shows the ‘optimal’ investment horizon at 5% return level is about 15 days for the index and is most frequently distributed at seven days (range: 5 to 15 days) for the 50 constituent stocks. This suggests a complex dynamics between the index and its constituents in terms of feedback and feed-forward loops. We also examine the distribution of first passage times for six world indices, the Dow Jones Industrial, Hang Seng, FTSE, SSEC, Kospi and the Nikkei. These range between 13 days (for the Kospi) to 47 days for the FTSE. Two distinct regimes, for both positive and negative returns) are observed in the evolution of the optimal investment horizon over different return levels.
Keywords: first passage time, optimal investment horizon, entry and exit strategies, Econophysics
JEL Classification: G12, C41, C51
Suggested Citation: Suggested Citation
Raje, Pradeep, Optimal Investment Horizons for S&P CNX Nifty and Its Components (August 17, 2009). NSE Research Initiative Papers. Available at SSRN: https://ssrn.com/abstract=1456764 or http://dx.doi.org/10.2139/ssrn.1456764