Revisiting Cont’s Stylized Facts for Modern Stock Markets

ArXiv ID: 2311.07738 “View on arXiv”

Authors: Unknown

Abstract

In 2001, Rama Cont introduced a now-widely used set of ‘stylized facts’ to synthesize empirical studies of financial price changes (returns), resulting in 11 statistical properties common to a large set of assets and markets. These properties are viewed as constraints a model should be able to reproduce in order to accurately represent returns in a market. It has not been established whether the characteristics Cont noted in 2001 still hold for modern markets following significant regulatory shifts and technological advances. It is also not clear whether a given time series of financial returns for an asset will express all 11 stylized facts. We test both of these propositions by attempting to replicate each of Cont’s 11 stylized facts for intraday returns of the individual stocks in the Dow 30, using the same authoritative data as that used by the U.S. regulator from October 2018 - March 2019. We find conclusive evidence for eight of Cont’s original facts and no support for the remaining three. Our study represents the first test of Cont’s 11 stylized facts against a consistent set of stocks, therefore providing insight into how these stylized facts should be viewed in the context of modern stock markets.

Keywords: stylized facts, financial returns, time series analysis, statistical properties, empirical finance, Equities (Individual Stocks)

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Street Traders
• Why: The paper primarily involves empirical statistical analysis (distribution checks, autocorrelation, volatility clustering) using real financial data, rather than developing novel mathematical models or complex proofs. The empirical rigor is high due to the use of authoritative regulatory data (Oct 2018–Mar 2019), a specific asset universe (Dow 30), and the replication of established statistical tests.

  flowchart TD
    Start["Research Goal: Do Cont's<br>Stylized Facts hold for<br>modern stock markets?"] --> Input["Data: Intraday returns<br>Dow 30 stocks (Oct 2018 - Mar 2019)"]
    
    Input --> Process["Computational Process:<br>Replicate 11 Stylized Facts<br>Statistical Analysis"]
    
    Process --> Outcomes{"Key Findings"}
    
    Outcomes --> Support["8 Facts Supported<br>e.g., Fat tails,<br>Volatility clustering"]
    Outcomes --> Fail["3 Facts Not Supported<br>e.g., Absence of<br>autocorrelations"]
    
    Support --> Conclusion["Conclusion: Most stylized<br>facts persist in modern markets,<br>but some require re-evaluation"]
    Fail --> Conclusion