Inverse Statistics in Economics: The Gain-Loss Asymmetry

6 Pages Posted: 13 Dec 2002

See all articles by Mogens H. Jensen

Mogens H. Jensen

Niels Bohr Institute

Anders Johansen

Riso National Laboratory - Wind Energy Department; University of Copenhagen, Niels Bohr. Inst.; University of California, Los Angeles (UCLA) - Institute of Geophysics and Planetary Physics

Ingve Simonsen

Nordita

Date Written: October 28, 2002

Abstract

Inverse statistics in economics is considered. We argue that the natural candidate for such statistics is the investment horizons distribution. This distribution of waiting times needed to achieve a predefined level of return is obtained from (often detrended) historic asset prices. Such a distribution typically goes through a maximum at a time called the {\em optimal investment horizon}, $\tau^*_\rho$, since this defines the most likely waiting time for obtaining a given return $\rho$. By considering equal positive and negative levels of return, we report on a quantitative gain-loss asymmetry most pronounced for short horizons. It is argued that this asymmetry reflects the market dynamics and we speculate over the origin of this asymmetry.

Suggested Citation

Jensen, Mogens H. and Johansen, Anders and Simonsen, Ingve, Inverse Statistics in Economics: The Gain-Loss Asymmetry (October 28, 2002). Available at SSRN: https://ssrn.com/abstract=348300 or http://dx.doi.org/10.2139/ssrn.348300