Alternation of different fluctuation regimes in the stock market dynamics

TL;DR

This paper investigates how different fluctuation regimes in stock markets influence return distributions, revealing that strong inter-stock couplings lead to more pronounced tail behaviors and potential Lévy-stable components.

Contribution

It provides empirical evidence linking market coupling strength to the statistical properties of stock return distributions in German and American markets.

Findings

Strong inter-stock couplings correlate with heavier tails in return distributions.

Periods of strong correlations can exhibit Lévy-stable behavior.

Market regimes influence the statistical nature of stock fluctuations.

Abstract

Based on the tick-by-tick stock prices from the German and American stock markets, we study the statistical properties of the distribution of the individual stocks and the index returns in highly collective and noisy intervals of trading, separately. We show that periods characterized by the strong inter-stock couplings can be associated with the distributions of index fluctuations which reveal more pronounced tails than in the case of weaker couplings in the market. During periods of strong correlations in the German market these distributions can even reveal an apparent L\'evy-stable component.