A simple explanation of power law distribution

[william the wie]

Power law distribution has much greater congregation around the average than normal distribution with close to 80% of all events within what appears to be one standard deviation with the assumption of normal distribution but with much longer tails that are seen as outliers when they are normal events.

[MENTION=20854]Zander[/MENTION], @Old Fart,

How is the best way to game this type of distribution? (source a Harry S. Dent book on the clearance table. Great source of oddball data, crappy source of market strategies.)

 

[Zander]

That stuff is way over my head. If I had to guess I'd say...pineapple?

Sorry.

 

[JimmieD]

Power law distribution has much greater congregation around the average than normal distribution with close to 80% of all events within what appears to be one standard deviation with the assumption of normal distribution but with much longer tails that are seen as outliers when they are normal events.

[MENTION=20854]Zander[/MENTION], @Old Fart,

How is the best way to game this type of distribution? (source a Harry S. Dent book on the clearance table. Great source of oddball data, crappy source of market strategies.)

The best way to invest/bet on this kind of thing is in the options markets, volatility trading or currency trading.

 

[william the wie]

Power law distribution has much greater congregation around the average than normal distribution with close to 80% of all events within what appears to be one standard deviation with the assumption of normal distribution but with much longer tails that are seen as outliers when they are normal events.

[MENTION=20854]Zander[/MENTION], @Old Fart,

How is the best way to game this type of distribution? (source a Harry S. Dent book on the clearance table. Great source of oddball data, crappy source of market strategies.)

The best way to invest/bet on this kind of thing is in the options markets, volatility trading or currency trading.

I concur. I write covered options on low beta securities and then buy the same type of option on higher volatility securities at same percentage of spot price.