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Some distributional properties of monthly stock returns in Sweden 1919-1990

Author

Listed:
  • Per Frennberg

    (Department of Economics, University of Lund, Sweden)

  • Björn Hansson

    (Department of Economics, University of Lund, Sweden)

Abstract

This paper examines the distributional properties of a newly constructed dataset oj monthly returns on the Swedish stock market. The standard assumptions that stock returns are log-normally distributed, serially independent, non-seasonal and homoscedastic are all rejected by data. Swedish stock returns are more likely to belong to a peaked and fat-tailed distribution, with positive first order autocorrelation, strong seasonality and changing volatility over time. These results are well in line with what has been reported from other national stock markets. Our major conclusion is that, given the failure of data to meet the usual distributional assumptions in finance, it may be worthwhile to pay more attention to modeling both the return generating process and the volatility generating process for the market index, instead of simply assuming a strict random walk model.

Suggested Citation

  • Per Frennberg & Björn Hansson, 1993. "Some distributional properties of monthly stock returns in Sweden 1919-1990," Finnish Economic Papers, Finnish Economic Association, vol. 6(2), pages 108-122, Autumn.
    • Handle: RePEc:fep:journl:v:6:y:1993:i:2:p:108-122
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    References listed on IDEAS

    as
    1. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    2. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," The Journal of Business, University of Chicago Press, vol. 46(3), pages 434-453, July.
    3. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    4. Akgiray, Vedat, 1989. "Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts," The Journal of Business, University of Chicago Press, vol. 62(1), pages 55-80, January.
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    Cited by:

    1. Waldenström, Daniel, 2014. "Swedish Stock and Bond Returns, 1856–2012," Working Paper Series 1027, Research Institute of Industrial Economics.

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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