A Heuristic for Approximating Extreme Negative Price Returns in Financial Markets

Abstract

Describes the behavior of financial markets as functions of the variables 'price return' and 'time' based on the net difference between ask and bid volumes over a unit period, thereby suggesting that at least a negative non-trivial price return extreme exists for a unit period. This admittedly heuristic approach also offers a method for approximating these negative price return extremes for a specific unit period. Limitations and applications are discussed.

Keywords: econophysics; asset prices; market model; probability; principle of least action; stock market; statistical finance; predictability

JEL Classification: C02; C63; C65; C1; C55; D4; G1; G12; L1; C25