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On the Distribution of Stock Price Differences
Benoit Mandelbrot and Howard M. Taylor
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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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.
Operations Research © 1967 INFORMS