Professor Zipf Goes to Wall Street

33 Pages Posted: 21 Aug 2009

See all articles by Yannick Malevergne

Yannick Malevergne

Université Paris I Panthéon-Sorbonne - Laboratoire PRISM; Labex ReFi

Pedro Santa-Clara

New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute

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Date Written: August 20, 2009

Abstract

The heavy-tailed distribution of firm sizes first discovered by Zipf (1949) is one of the best established empirical facts in economics. We show that it has strong implications for asset pricing. Due to the concentration of the market portfolio when the distribution of the capitalization of firms is sufficiently heavy-tailed, an additional risk factor generically appears even for very large economies. Our two-factor model is as successful empirically as the three-factor Fama-French model.

Keywords: Zipf, APT, firm size

JEL Classification: G12

Suggested Citation

Malevergne, Yannick and Santa-Clara, Pedro and Sornette, Didier, Professor Zipf Goes to Wall Street (August 20, 2009). Available at SSRN: https://ssrn.com/abstract=1458280 or http://dx.doi.org/10.2139/ssrn.1458280

Yannick Malevergne

Université Paris I Panthéon-Sorbonne - Laboratoire PRISM ( email )

17 rue de la Sorbonne
Paris, 75005
France

HOME PAGE: http://perso.univ-paris1.fr/ymalevergn

Labex ReFi ( email )

79 avenue de la République
Paris, 75011
France

Pedro Santa-Clara (Contact Author)

New University of Lisbon - Nova School of Business and Economics ( email )

Lisbon
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~psc/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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