Detecting Stock Crashes Using Levy Distribution

- Bielinskyi, Andrii, Soloviev, V.N. (orcid.org/0000-0002-4945-202X), Semerikov, Serhiy O. (orcid.org/0000-0003-0789-0272) and Solovieva, Viktoria (2019) Detecting Stock Crashes Using Levy Distribution Proceedings of the Selected Papers of the 8th International Conference on Monitoring, Modeling & Management of Emergent Economy (M3E2-EEMLPEED 2019), Odessa, Ukraine (2422). pp. 420-433. ISSN 1613-0073

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Abstract

In this paper we study the possibility of construction indicators-precursors relying on one of the most power-law tailed distributions – Levy’s stable distribution. Here, we apply Levy’s parameters for 29 stock indices for the period from 1 March 2000 to 28 March 2019 daily values and show their effectiveness as indicators of crisis states on the example of Dow Jones Industrial Average index for the period from 2 January 1920 to 2019. In spite of popularity of the Gaussian distribution in financial modeling, we demonstrated that Levy’s stable distribution is more suitable due to its theoretical reasons and analysis results. And finally, we conclude that stability α and skewness β parameters of Levy’s stable distribution which demonstrate characteristic behavior for crash and critical states, can serve as an indicator-precursors of unstable states.

Item Type: Article
Keywords: alpha-stable distribution, stock market crash, indicator-predictor, indicator of critical events, log-returns fluctuations, Dow Jones Industrial Average Index
Subjects: Science and knowledge. Organization. Computer science. Information. Documentation. Librarianship. Institutions. Publications > 00 Prolegomena. Fundamentals of knowledge and culture. Propaedeutics > 004 Computer science and technology. Computing. Data processing > 004.9 ІКТ ( Application-oriented computer-based techniques ) > 004.94 Simulation
Science and knowledge. Organization. Computer science. Information. Documentation. Librarianship. Institutions. Publications > 3 Social Sciences > 33 Economics. Economic science
Divisions: Information Technologies and Learning Tools > Joint laboratory with SIHE “Kryvyi Rih National University”
Depositing User: Сергій Олексійович Семеріков
Date Deposited: 12 Aug 2019 13:38
Last Modified: 10 Oct 2019 18:55
URI: http://lib.iitta.gov.ua/id/eprint/716847

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