Scale-Dependent Price Fluctuations for the Indian Stock Market

Abstract

Classic studies of the probability density of price fluctuations $g$ for stocks and foreign exchanges of several highly developed economies have been interpreted using a {\it power-law} probability density function $P(g)\sim g^{-(\alpha +1)}$ with exponent values $\alpha >2$, which are outside the Lévy-stable regime $0<\alpha <2$. To test the universality of this relationship for less highly developed economies, we analyze daily returns for the period Nov. 1994--June 2002 for the 49 largest stocks of the National Stock Exchange which has the highest volume of trade in India. We find that $P(g)$ decays as an {\it exponential} function $P(g)\sim \exp (-\beta g)$ with a characteristic decay scales $\beta =1.51\pm 0.05$ for the negative tail and $\beta =1.34\pm 0.04$ for the positive tail, which is significantly different from that observed for developed economies. Thus we conclude that the Indian stock market may belong to a universality class that differs from those of developed countries analyzed previously.

arXiv comment7 pages, 8 figures

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• Inverse Cubic Law for the Probability Distribution of Stock Price Variations
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