Heavy tails
Thursday, 25 February 2010
There are many talks about heavy tails of price change distributions. This means the price sometimes enters highly correlated mode and produce extremely long shift, which is out of any expectations of a “normal” behaviour.
The question is how to research this effect. You can either measure autocorrelations as an underlying reason, or price change distribution itself as a product. There is even more convenient way: mesuring price shifts as a very final product.
Actually, this statistical effect is a basis of all trend following strategies. What is the trend as not the extremally long price shift?