Do Our Markets Look Real? Stylized Facts

Real returns aren’t Gaussian white noise — they have heavy tails, near-zero return autocorrelation but persistent volatility clustering, and gain/loss asymmetry. We generate returns with and without these stylized facts (via finmlsim) and measure the difference — the same GARCH engine behind the Lab’s realistic market mode.

Key takeaways

1. 1.Gaussian is a lie for returns — real tails are heavy; size risk for 5-sigma days.
2. 2.Direction is ≈ unpredictable, but volatility is not — clustering is the exploitable fact.
3. 3.Measure, don’t assume: finmlsim’s stylized-facts summary tells you if a series is honest.