Inverse Statistics for Stocks and Markets

13 Pages Posted: 14 Nov 2005

See all articles by Anders Johansen

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

Mogens H. Jensen

Niels Bohr Institute

Date Written: November 8, 2005

Abstract

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

Suggested Citation

Johansen, Anders and Simonsen, Ingve and Jensen, Mogens H., Inverse Statistics for Stocks and Markets (November 8, 2005). Available at SSRN: https://ssrn.com/abstract=844364 or http://dx.doi.org/10.2139/ssrn.844364

Anders Johansen (Contact Author)

Riso National Laboratory - Wind Energy Department ( email )

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University of Copenhagen, Niels Bohr. Inst. ( email )

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University of California, Los Angeles (UCLA) - Institute of Geophysics and Planetary Physics ( email )

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United States
(310) 825 0961 (Phone)
(310) 206 3051 (Fax)

Ingve Simonsen

Nordita ( email )

Blegdamsvej 17
DK-2100 Copenhagen
Denmark

Mogens H. Jensen

Niels Bohr Institute ( email )

Blegdamsvej 17
2100 Kbh.O
Denmark

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