Benford's law has been applied in various ways for detecting fraud (e.g. elections or accounting). But what are the most useful applications of Benford in quantitative finance? Are there any? I have seen papers trying to apply Benford in this context but it often feels a bit "forced".
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By accident i stumbled upon a new work submitted yesterday (http://arxiv.org/abs/1208.5896). It seems most papers are talking about a specific dataset following Benfords law. But that seems not to be what you are looking for. You should look into this bibliography here ( about Benford's law in general): http://arxiv.org/abs/math/0607168 There are also some (quantitative) finance related works in there (although rare). Most publications are pure mathematics though... edit:
Here are some references out of the bibliography related to the subject On the hypothesis of psychological barriers in stock markets and Benford's Law http://www.sciencedirect.com/science/article/pii/S0927539897000248 Doucouliagos, C. (2004). Number preference in Australian stocks. Applied Financial Economics 14(1), 43-54. Herrmann, D. and W.B. Thomas (2005). Rounding of analyst forecasts. The Accounting Review Those were the first i found. Ley, E. (1996). On the peculiar distribution of the U.S. Stock Indices Digits. The American Statistician 50(4), 311-313. http://www.jstor.org/discover/10.2307/2684926?uid=3738032&uid=2&uid=4&sid=21101183172427 http://libra.msra.cn/Publication/2739922/are-there-psychological-barriers-in-the-dow-jones-index Several more interesting sources can be found in there - but they are more method-related (i found time series, machine learning and various other mathematical subjects). Most of the publications seem to deal with fraud in reporting/accounting and experimental data though. |
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