Zipf Distribution in Order Flow - Quant Trader Interview Question
Difficulty: Hard
Category: Market Microstructure
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Topics: probability, power-law, market-microstructure, mean, variance
Problem Description
Empirical studies suggest that order sizes in equity markets approximately follow a power law, resembling a Zipf distribution. Suppose the probability that an order size, $X$, exceeds a certain value, $x$, is given by $P(X > x) \propto x^{-\alpha}$, where $\alpha \approx 1.5$. Based on this information, does this distribution have a finite mean? Does it have a finite variance?
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