https://doi.org/10.1140/epjb/e2012-21060-1
Regular Article
Spurious trend switching phenomena in financial markets
1
ETH Zurich, Department of Management, Technology and Economics, Kreuzplatz 5,
8032
Zurich,
Switzerland
2
Swiss Finance Institute, c/o University of Geneva,
40 blvd. du Pont d’Arve,
1211
Geneva 4,
Switzerland
a
e-mail: vfilimonov@ethz.ch
Received: 20 December 2011
Received in final form: 2 March 2012
Published online: 16 May 2012
The observations of power laws in the time to extrema of volatility, volume and intertrade times, from milliseconds to years reported by Preis et al. (2010, 2011), are shown to result straightforwardly from the selection of biased statistical subsets of realizations in otherwise featureless processes such as random walks. The bias stems from the selection of price peaks that imposes a condition on the statistics of price change and of trade volumes that skew their distributions. For the intertrade times, the extrema and power laws results from the format of transaction data.
Key words: Statistical and Nonlinear Physics
© EDP Sciences, Società Italiana di Fisica and Springer-Verlag, 2012