Empirical distributions of Chinese stock returns at different microscopic timescales

TL;DR

This paper analyzes the distribution of Chinese stock returns across various microscopic timescales using high-frequency data, revealing inverse cubic law at one-trade scale and Student distribution at larger scales.

Contribution

It provides empirical evidence on the distributional behavior of stock returns at different timescales in the Chinese market, highlighting the transition from inverse cubic to Student distributions.

Findings

Returns at one-trade timescale follow the inverse cubic law.

At larger timescales, returns follow Student distributions with power-law tails.

Tail fatness increases as timescale decreases, supporting vibrational theory.

Abstract

We study the distributions of event-time returns and clock-time returns at different microscopic timescales using ultra-high-frequency data extracted from the limit-order books of 23 stocks traded in the Chinese stock market in 2003. We find that the returns at the one-trade timescale obey the inverse cubic law. For larger timescales (2-32 trades and 1-5 minutes), the returns follow the Student distribution with power-law tails. With the decrease of timescale, the tail becomes fatter, which is consistent with the vibrational theory.