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Empirical Analyses of Industry Stock Index Return Distributions for the Taiwan Stock Exchange

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  • Svetlozar T. Rachev

    (School of Economics and Business Engineering, University of Karlsruhe)

  • Chufang Wu

    (Department of Applied Mathematics, National Donghua University of Taiwan)

  • Frank J. Fabozzi

    (Finance and Becton Fellow, School of Management, Yale University)

Abstract

We study the daily return distributions for 22 industry stock indexes on the Tai-wan Stock Exchange under the unconditional homoskedastic independent, identically distributed and the conditional heteroskedastic GARCH models. Two distribution hypotheses are tested: the Gaussian and the stable Paretian distributions. The performance of the stable Paretian distribution is better than that of the Gaussian distribution. A back-testing example is provided to give evidence on the superiority of the stable ARMA-GARCH to the normal ARMA-GARCH.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 8 (2007)
Issue (Month): 1 (May)
Pages: 21-31

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Handle: RePEc:cuf:journl:y:2007:v:8:i:1:p:21-31

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Related research

Keywords: Stable distributions; ARMA-GARCH; Heavy tails; Volatility clustering; Value at risk;

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  1. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
  2. Chiang, Thomas C. & Doong, Shuh-Chyi, 1999. "Empirical analysis of real and financial volatilities on stock excess returns: evidence from Taiwan industrial data," Global Finance Journal, Elsevier, vol. 10(2), pages 187-200.
  3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  4. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
  5. Yu Chuan Huang & Bor-Jing Lin, 2004. "Value-at-Risk Analysis for Taiwan Stock Index Futures: Fat Tails and Conditional Asymmetries in Return Innovations," Review of Quantitative Finance and Accounting, Springer, vol. 22(2), pages 79-95, 03.
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