Abstract
We investigate whether the distribution of share price follows a power law distribution at the regional level, using data from companies publicly listed worldwide. Based on ISO country codes, 7,796 companies are divided into four regions: America, Asia, Europe, and the rest of the world. We find that, at the regional level, the distributions of share price follow a power law distribution and that the power law exponents estimated by region are quite diverse. The power law exponent for Europe is close to that of the world and indicates a Zipf distribution. We also find that the theoretical share price and fundamentals estimated using a panel regression model hold to a power law at the regional level. A panel regression in which share price is the dependent variable and dividends per share, cash flow per share, and book value per share are explanatory variables identifies the two-way fixed effects model as the best model for all regions. The results of this research are consistent with our previous findings that a power law for share price holds at the world level based on panel data for the period 2004–2013 as well as cross-sectional data for these 10 years.
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Notes
- 1.
America includes North America, South America, and Central America. Asia includes eastern Asia, southern Asia, central Asia, and the Middle East. The rest of the world includes Oceania and Africa.
- 2.
Total observations available in each region were as follows: America, 8935; Asia, 27,407; Europe, 8,791; rest of the world, 2028.
- 3.
The probability density function for the Pareto distribution is defined as \(f(x)=\frac{\alpha k^{\alpha }}{x^{\alpha +1}}, \quad x \ge k > 0 \).
- 4.
The graph fo the rest of the world is excluded. This is done throughout since the numbers of companies in this is only 5.2 % of the total.
- 5.
Details of the derivations are presented (Kaizoji and Miyano 2016c).
- 6.
- 7.
The two classes of measurement and computational details for this test are found in Čížek and Weron (2005, Chap. 13)
- 8.
The two-way random effects model cannot be used since we use unbalanced panel observations.
- 9.
Woodlridge (2010, p.299) proposes a method that uses residuals from pool OLS and checks the existence of serial correlations.
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Acknowledgements
This research was supported by JSPS KAKENHI Grant Number 2538404, 2628089.
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Miyano, M., Kaizoji, T. (2017). Power Law Distributions for Share Price and Financial Indicators: Analysis at the Regional Level. In: Abergel, F., et al. Econophysics and Sociophysics: Recent Progress and Future Directions. New Economic Windows. Springer, Cham. https://doi.org/10.1007/978-3-319-47705-3_6
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