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Security Return Distributions and Market Structure: Evidence from the NYSE/AMEX and the NASDAQ Markets


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  • Aggarwal, Raj
  • Aggarwal, Reena


This paper documents significant and persistent deviations from normality in security return distributions for the NYSE, AMEX, and NASDAQ from 1974 to 1988. Controlling for January and size effects, we find that the deviations of security return distributions from normality decline with increasing portfolio size and investment horizon for the NYSE and AMEX, especially for daily returns. Deviations appear to be greater for the NASDAQ than for the two exchanges even for firms of the same size. Ratios of monthly to daily variances are also larger for the NASDAQ. These results suggest that nonparametric or other robust statistical techniques should be used when valuing equity options and other derivatives, especially when examining NASDAQ security returns. They further imply that trading strategies based on market inefficiencies are more likely to succeed on the NASDAQ.

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Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 16 (1993)
Issue (Month): 3 (Fall)
Pages: 209-20

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Handle: RePEc:bla:jfnres:v:16:y:1993:i:3:p:209-20

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Cited by:
  1. Nikkinen, Jussi, 2003. "Normality tests of option-implied risk-neutral densities: evidence from the small Finnish market," International Review of Financial Analysis, Elsevier, Elsevier, vol. 12(2), pages 99-116.
  2. Batten, Jonathan & Ellis, Craig & Hogan, Warren, 2002. "Scaling the volatility of credit spreads: Evidence from Australian dollar eurobonds," International Review of Financial Analysis, Elsevier, Elsevier, vol. 11(3), pages 331-344.
  3. C. James Hueng & Ruey Yau, 2006. "Investor preferences and portfolio selection: is diversification an appropriate strategy?," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(3), pages 255-271.
  4. Low, Rand Kwong Yew & Alcock, Jamie & Faff, Robert & Brailsford, Timothy, 2013. "Canonical vine copulas in the context of modern portfolio management: Are they worth it?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(8), pages 3085-3099.
  5. Aggarwal, Raj, 1995. "Microstructure of world trading markets: Hans R. Stoll, Norwell, MA: Kluwer Academic Publishers, 1993, 154 pp," International Review of Economics & Finance, Elsevier, Elsevier, vol. 4(3), pages 311-313.
  6. Raj Aggarwal, 2004. "Persistent Puzzles in International Finance and Economics," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 35(3), pages 241-250.
  7. Ratner, Mitchell, 1996. "Investigating the behavior and characteristics of the Madrid Stock Exchange," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(1), pages 135-149, January.
  8. James Sfiridis & Alan Gelfand, 2002. "A survey of sampling-based Bayesian analysis of financial data," Applied Mathematical Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(4), pages 273-291.
  9. Nikkinen, Jussi, 2003. "Impact of foreign ownership restrictions on stock return distributions: evidence from an option market," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 13(2), pages 141-159, April.


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