Stylized facts in statistical finance

Category: [Finance & Investing]


2min read

In statistical finance (as well as in certain areas in social science), stylized facts are empirical observations summarized in a theory-like form, and are generally representative under broad circumstances.

Stylized facts are commonly used in statistical finance to address and summarize phenomenon directly observed from historical data, and explainable with a certain level of theoretical consistency and logic ("... this makes sense to me"). Stylized facts may often guide investigations and explorations into certain topics of interest, functioning perhaps as assumptions to be either built upon or proven otherwise. Specifically, invalidating a stylized fact could be considered insightful, much like using data analysis and machine learning to invalidate certain entrenched assumptions held by business users.

In this first statistical finance post, I would like to list out a couple of stylized facts (SF), without explanation, that are observed and used in finance, for future referencing as well as for my own explorations.

There are probably more and more advanced ones that I have yet to come across, so I will probably add on to the list over time. In any case, I will start with these SFs and other techniques in the meantime, in my exploration of statistical finance. I also be using these SF indices (SF1 etc.) as references in future posts to reduce verbose.