View Complete Reference

Ausloos, M, Ficcadenti, V, Does, G and Shakeel, M (2021)

Benford's laws tests on S&P500 daily closing values and the corresponding daily log-returns both point to huge non-conformity

Preprint arXiv:2104.07962 [q-fin.ST]; last accessed April 30, 2021. To appear in: Physica A: Statistical Mechanics and its Applications, 574.

ISSN/ISBN: Not available at this time. DOI: 10.1016/j.physa.2021.125969



Abstract: The so-called Benford's laws are of frequent use in order to observe anomalies and regularities in data sets, in particular, in election results and financial statements. Yet, basic financial market indices have not been much studied, if studied at all, within such a perspective. This paper presents features in the distributions of S\&P500 daily closing values and the corresponding daily log returns over a long time interval, [03/01/1950 - 22/08/2014], amounting to 16265 data points. We address the frequencies of the first, second, and first two significant digits counts and explore the conformance to Benford's laws of these distributions at five different (equal size) levels of disaggregation. The log returns are studied for either positive or negative cases. The results for the S&P500 daily closing values are showing a huge lack of non-conformity, whatever the different levels of disaggregation. Some "first digits" and "first two digits" values are even missing. The causes of this non-conformity are discussed, pointing to the danger in taking Benford's laws for granted in huge databases, whence drawing "definite conclusions". The agreements with Benford's laws are much better for the log returns. Such a disparity in agreements finds an explanation in the data set itself: the inherent trend in the index. To further validate this, daily returns have been simulated calibrating the simulations with the observed data averages and tested against Benford's laws. One finds that not only the trend but also the standard deviation of the distributions are relevant parameters in concluding about conformity with Benford's laws.


Bibtex:
@article{, title={Benford’s laws tests on S&P500 daily closing values and the corresponding daily log-returns both point to huge non-conformity}, volume={574}, ISSN={0378-4371}, url={https://www.sciencedirect.com/science/article/abs/pii/S0378437121002417?via%3Dihub}, DOI={10.1016/j.physa.2021.125969}, journal={Physica A: Statistical Mechanics and its Applications}, publisher={Elsevier BV}, author={Ausloos, Marcel and Ficcadenti, Valerio and Dhesi, Gurjeet and Shakeel, Muhammad}, year={2021}, month={Jul}, pages={125969}, }


Reference Type: Journal Article

Subject Area(s): Economics