Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Time-varying Volatility and the Power Law Distribution of Stock Returns Missaka Warusawitharana 2016-022 Please cite this paper as: Warusawitharana, Missaka (2016). “Time-varying Volatility and the Power Law Distribution of Stock Returns,” Finance and Economics Discussion Se- ries 2016-022. Washington: Board of Governors of the Federal Reserve System, http://dx.doi.org/10.17016/FEDS.2016.022. NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Time-varying Volatility and the Power Law Distribution of Stock Returns Missaka Warusawitharana∗ Board of Governors of the Federal Reserve System March 18, 2016 JEL Classifications: C58, D30, G12 Keywords: Tail distributions, high frequency returns, power laws, time-varying volatility ∗I thank Yacine A¨ıt-Sahalia, Dobislav Dobrev, Joshua Gallin, Tugkan Tuzun, Toni Whited, Jonathan Wright, Yesol Yeh and seminar participants at the Federal Reserve Board for helpful comments on the paper. Contact: Division of Research and Statistics, Board of Governors of the Federal Reserve System, Mail Stop 97, 20th and C Street NW, Washington, D.C. 20551.
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