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Stochastic Behaviour of European Stock Markets Indices

  • Albert Corhay
  • A. Tourani Rad
Conference paper
Part of the Contributions to Management Science book series (MANAGEMENT SC.)

Abstract

This paper is concerned with modelling return generating processes in several European stock markets. Distributional properties of daily stock returns play a crucial role in valuation of contingent claims and mean-variance asset pricing models, as well as in their empirical tests. A common assumption underlying a considerable body of finance literature is that the logarithm of stock price relatives are independent and identically distributed according to a normal distribution with constant variance, while little attention is paid to the empirical fit of the postulated process. For instance, the mean-variance asset pricing models of Sharpe (1964) and the option pricing model of Black and Scholes (1973) are based on the assumption of normally distributed returns. Moreover, the normality assumption and the parameter stability are necessary for most of statistical methods usually applied in empirical studies.

Keywords

Stock Market Stock Return Conditional Variance GARCH Model Autocorrelation Coefficient 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Physica-Verlag Heidelberg 1993

Authors and Affiliations

  • Albert Corhay
    • 1
    • 2
  • A. Tourani Rad
    • 2
  1. 1.University of LiègeBelgium
  2. 2.University of LimburgNetherlands

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