Empirical Evidence on Student-t Log-Returns of Diversified World Stock Indices
The aim of this paper is to document some empirical facts related to log-returns of diversified world stock indices when these are denominated in different currencies. Motivated by earlier results, we have obtained the estimated distribution of log-returns for a range of world stock indices over long observation periods. We expand previous studies by applying the maximum likelihood ratio test to the large class of generalized hyperbolic distributions, and investigate the log-returns of a variety of diversified world stock indices in different currency denominations. This identifies the Student-t distribution with about four degrees of freedom as the typical estimated log-return distribution of such indices. Owing to the observed high levels of significance, this result can be interpreted as a stylized empirical fact.
Key-wordsDiversified world stock index growth optimal portfolio log-return distribution Student-t distribution generalized hyperbolic distribution likelihood ratio test
AMS Subject Classification62F03 62P20 91B28
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