The distribution of stock market returns and the market model
AbstractIn this paper the Market Model, estimated for 20 stocks on the Stockholm Stock Exchange, is examined under different assumptions regarding the distribution of the residuals. We find strong evidence that the residuals have a leptokurtic distribution and our results suggest that much of the leptokurticness can be attributed to a jump component in the distribution. Moreover, changes in the assumed distribution of the residuals can sometimes change the beta estimate by 20 percent or more. Our alternative estimators are more robust to extreme observations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Finnish Economic Association in its journal Finnish Economic Papers.
Volume (Year): 12 (1999)
Issue (Month): 1 (Spring)
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elroy Dimson and Paul Marsh., 1981.
"The Stability of UK Risk Measures and the Problem of Thin Trading,"
Research Program in Finance Working Papers
120, University of California at Berkeley.
- Dimson, E & Marsh, P R, 1983. " The Stability of UK Risk Measures and the Problem of Thin Trading," Journal of Finance, American Finance Association, vol. 38(3), pages 753-83, June.
- Lau, Amy Hing-Ling & Lau, Hon-Shiang & Wingender, John R, 1990. "The Distribution of Stock Returns: New Evidence against the Stable Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 217-23, April.
- Campbell, John Y. & Hentschel, Ludger, 1992.
"No news is good news *1: An asymmetric model of changing volatility in stock returns,"
Journal of Financial Economics,
Elsevier, vol. 31(3), pages 281-318, June.
- Hentschel, Ludger & Campbell, John, 1992. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," Scholarly Articles 3220232, Harvard University Department of Economics.
- John Y. Campbell & Ludger Hentschel, 1991. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," NBER Working Papers 3742, National Bureau of Economic Research, Inc.
- Tom Berglund & Eva Liljeblom, 1990. "The impact of trading volume on stock return distributions : an empirical analysis," Finnish Economic Papers, Finnish Economic Association, vol. 3(2), pages 108-124, Autumn.
- Bookstaber, Richard M & McDonald, James B, 1987. "A General Distribution for Describing Security Price Returns," The Journal of Business, University of Chicago Press, vol. 60(3), pages 401-24, July.
- Zeckhauser, Richard & Thompson, Mark, 1970. "Linear Regression with Non-Normal Error Terms," The Review of Economics and Statistics, MIT Press, vol. 52(3), pages 280-86, August.
- Berglund, Tom & Liljeblom, Eva, 1990. "The Impact of Trading Volume on Stock Return Distributions: An Empirical Analysis," Discussion Papers 315, The Research Institute of the Finnish Economy.
- Beckers, Stan, 1981. "A Note on Estimating the Parameters of the Diffusion-Jump Model of Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(01), pages 127-140, March.
- Hsu, D. A., 1984. "The Behavior of Stock Returns: Is It Stationary or Evolutionary?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(01), pages 11-28, March.
- Hawawini, Gabriel, 1983. "Why beta shifts as the return interval changes," MPRA Paper 44893, University Library of Munich, Germany.
- Cartwright, Phillip A & Lee, Cheng F, 1987. "Time Aggregation and the Estimation of the Market Model: Empirical Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 131-43, January.
- Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
- Chan, Louis K. C. & Lakonishok, Josef, 1992. "Robust Measurement of Beta Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(02), pages 265-282, June.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary).
If references are entirely missing, you can add them using this form.