The Newcomb-Benford Law in the Quantitative Analysis of Stock Prices on the NewConnect Market

Magdalena Lesiak

doi:10.18778/0208-6018.376.01

Authors

Magdalena Lesiak University of Lodz, Faculty of Economics and Sociology, Lodz Poland https://orcid.org/0000-0003-1320-4961

DOI:

https://doi.org/10.18778/0208-6018.376.01

Keywords:

Newcomb–Benford law, NewConnect market, probability, mathematical statistics

Abstract

The aim of the study is to verify the conformity of the empirical distribution of closing prices of companies listed on the NewConnect market in Warsaw with the theoretical Newcomb-Benford law. Furthermore, the study examines whether the degree of conformity with the Benford distribution differs between high- and low-liquidity companies. The study covered 558,294 daily closing prices for 353 companies listed on the NewConnect market from 2007 to 2022. To verify whether the empirical distribution of daily closing prices conforms to the theoretical Newcomb-Benford distribution, statistical tests and the mean absolute deviation (MAD) measure were applied. The results indicate that deviations from the theoretical Newcomb-Benford distribution are greater in the early periods of the alternative market and for low-liquidity companies. The originality of this study lies in the application of the Newcomb–Benford law in the statistical analysis of closing prices on the NewConnect market. The study contributes to the literature by combining classical goodness of fit tests (Chi², Kolmogorov-Smirnov, Chebyshev, Friedman’s U, Hotelling) with the MAD measure of deviation. This approach allows not only the formal assessment of statistical significance but also the evaluation of the practical magnitude of deviations between the empirical distribution and the theoretical Newcomb-Benford pattern.

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