Defining an Intrinsic ‘Stickiness’ Parameter of Stock Price Returns
Physica A547, DOI: 10.1016/j.physa.2020.124464 (2020).
22 Pages Posted: 3 Jun 2020
Date Written: October 1, 2019
We introduce a non-linear pricing model of individual stock returns that defines a ”stickiness” parameter of the returns. The pricing model resembles the capital asset pricing model (CAPM) used in finance but has a non-linear component inspired from models of earth quake tectonic plate movements. The link to tectonic plate movements happens, since price movements of a given stock index is seen adding “stress” to its components of individual stock returns, in order to follow the index. How closely individual stocks follow the index’s price movements, can then be used to define their “stickiness”.
Keywords: non-linear CAPM, “stickiness” of stock returns
JEL Classification: G00, G02, G12
Suggested Citation: Suggested Citation