CED model for asset returns and fractal market hypothesis

A new general model for asset returns is studied in the framework of the Fr actal Market Hypothesis (FMH). To accommodate markets with arbitrage opport unities, it concerns capital market systems in which the Conditionally Expo nential Dependence (CED) property can be attached to each investor on the m arket. Employing the limit theorem for the CED systems, the universal chara cteristics for the distribution of asset returns are derived. This explains the special role of the Weibull distribution in modeling of global asset r eturns for market with no arbitrage and the two-power laws property of the density of global returns, evident in the empirical data. Finally, the link with two-parameter Pareto distributions is established. (C) 1999 Elsevier Science Ltd. All rights reserved.