Professor Zipf Goes to Wall Street

34 Pages Posted: 31 Aug 2009  

Yannick Malevergne

Université Paris I Panthéon-Sorbonne - Laboratoire PRISM

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

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

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Date Written: August 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.

Suggested Citation

Malevergne, Yannick and Santa-Clara, Pedro and Sornette, Didier, Professor Zipf Goes to Wall Street (August 2009). NBER Working Paper No. w15295. Available at SSRN: https://ssrn.com/abstract=1463888

Yannick Malevergne (Contact Author)

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

17 rue de la Sorbonne
Paris, 75005
France

Pedro Santa-Clara

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 )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Didier Sornette

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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/

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