Inverse Statistics for Stocks and Markets
13 Pages Posted: 14 Nov 2005
Date Written: November 8, 2005
In recent publications, the authors have considered inverse statistics of the Dow Jones Industrial Averaged (DJIA). Specifically, we argued that the natural candidate for such statistics is the investment horizons distribution. This is the distribution of waiting times needed to achieve a predefined level of return obtained from detrended historic asset prices. Such a distribution typically goes through a maximum at a time coined the optimal investment horizon Tp, which defines the most likely waiting time for obtaining a given return p. By considering equal positive and negative levels of return, we reported in on a quantitative gain/loss asymmetry most pronounced for short horizons. In the present paper, this gain/loss asymmetry is re-visited for 2/3 of the individual stocks presently in the DJIA. We show that this gain/loss asymmetry established for the DJIA surprisingly is not present in the time series of the individual stocks. The most reasonable explanation for this fact is that the gain/loss asymmetry observed in the DJIA as well as in the SP500 and Nasdaq are due to movements in the market as a whole, i.e., cooperative cascade processes (or 'synchronization') which disappear in the inverse statistics of the individual stocks.
Keywords: Gain-loss asymmetry, US markets
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