Abstract
This article investigates whether the Gaussian distribution hypothesis holds 382 U.S. stocks and compares it to the stable Paretian hypothesis. The daily returns are examined in the framework of two probability models - the homoskedastic independent, identical distributed model and the conditional heteroskedastic ARMA-GARCH model. Consistent with other studies, we strongly reject the Gaussian hypothesis for both models. We find out that the stable Paretian hypothesis better explains the tails and the central part of the return distribution.
Prof. Rachev gratefully acknowledges research support by grants from Division of Mathematical, Life and Physical Sciences, College of Letters and Science, University of California, Santa Barbara, the Deutschen Forschungsgemeinschaft and the Deutscher Akademischer Austausch Dienst.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
AKGIRAY, A. and BOOTH, G.G. (1988): The stable-law model of stock returns. Journal of Business and Economic Statistics, 6, 51–57.
AKGIRAY, V. and LAMOUREUX, G.G. (1989): Estimation of stable-law parameters: A comparative study. Journal of Business and Economic Statistics, 7, 85–93.
BOLLERSLEV, T. (1986): Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31, 307–327.
DUMOUCHEL, W.H. (1971): Stable Distributions in Statistical Inference. A dissertation Presented to the Faculty of the Graduate School of Yale University in Candidacy for the Degree of Doctor of Philosophy Yale University.
ENGLE, R.F. (1982): Autoregressive conditional heteroskedasticity with estimates of the variance of the United Kingdom inflation. Econometrica, 50, 276–287.
FAMA, E. (1963): Mandelbrot and the stable Paretian hypothesis. Journal of Business 36, 420–429.
FAMA, E. (1965): The behavior of stock market prices. Journal of Business 38, 34–105.
JANICKI, A. and WERON, A. (1994): Simulation and Chaotic Behavior of Alpha-Stable Stochastic Processes. Marcel Dekker, New York.
MANDELBROT, B. (1963): The variation of certain speculative prices. Journal of Business, 26, 394–419.
RACHEV, S.T. and MITTNIK, S. (2000): Stable Paretian Models in Finance. John Wiley & Sons, Chichester.
RACHEV, S.T. (Ed.) (2003): Handbook of Heavy Tailed Distributions in Finance. Elsevier/North-Holland, Amsterdam.
SAMORODNITSKY, G. and TAQQU, M. (1994): Stable Non-Gaussian Random Processes, Stochastic models with Infinite Variance. Chapman and Hall, New York.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2005 Springer-Verlag Berlin · Heidelberg
About this chapter
Cite this chapter
Rachev, S.T., Stoyanov, S.V., Biglova, A., Fabozzi, F.J. (2005). An Empirical Examination of Daily Stock Return Distributions for U.S. Stocks. In: Baier, D., Decker, R., Schmidt-Thieme, L. (eds) Data Analysis and Decision Support. Studies in Classification, Data Analysis, and Knowledge Organization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-28397-8_30
Download citation
DOI: https://doi.org/10.1007/3-540-28397-8_30
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-26007-3
Online ISBN: 978-3-540-28397-3
eBook Packages: Mathematics and StatisticsMathematics and Statistics (R0)