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On the Distribution of Stock Price Differences

Benoit Mandelbrot and Howard M. Taylor
Operations Research
Vol. 15, No. 6 (Nov. - Dec., 1967), pp. 1057-1062
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/168611
Page Count: 6
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On the Distribution of Stock Price Differences
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Abstract

Price changes over a fixed number of transactions may have a Gaussian distribution. Price changes over a fixed time period may follow a stable Paretian distribution, whose variance is infinite. Since the number of transactions in any time period is random, the above statements are not necessarily in disagreement. A possible explanation is proposed by Taylor, and then shown by Mandelbrot to be intimately related to an earlier discussion of the specialists' function of ensuring the continuity of the market.

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