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".


1 Answer 1


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
http://www.google.at/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CCQQFjAA&url=http%3A%2F%2Fwww.uic.edu%2Fclasses%2Factg%2Factg315zhang%2Froundmkt.pdf&ei=PcdAUPDxGdCb1AX06ICoBQ&usg=AFQjCNHOBSqQ0ZEKGCOVHIul3k9zE5KZrA (Das, S. and H. Zhang (2001). The stock market’s under-reaction to rounding-up in EPS)

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


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.

  • $\begingroup$ I have seen the paper of the first link yesterday too that's why I recalled that Benford's law is a funny thing. Thank you for the second link - I will go through it. $\endgroup$
    – Richi Wa
    Aug 31, 2012 at 7:20
  • $\begingroup$ I went through the list of Benford publications (second link). Unfortunately I didn't find anything applied to financial markets ... $\endgroup$
    – Richi Wa
    Aug 31, 2012 at 13:50
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    $\begingroup$ @Richard Hi! I added some of those i thought to be relevant (without having actually read them). Maybe i will set some of them onto my reading list. Generally i think the room for applications will be quite small. The main thing Benfords law teaches us to take the right number distribution when trying to make up experimental data ;-D $\endgroup$
    – vanguard2k
    Aug 31, 2012 at 14:55
  • $\begingroup$ apparantly there is no useful application of Benford to quant.finance - so I accept your answer. Thanks for the efforts. $\endgroup$
    – Richi Wa
    Sep 18, 2012 at 9:21

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