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Testing the Multivariate Normality of Australian Stock Returns

Author

Listed:
  • Philip Gray

    (Australian Graduate School of Management, The University of New South Wales, Sydney NSW 2052; E†mail: pgray@agsm.unsw.edu.au)

  • Egon Kalotay

    (School of Economic and Financial Studies, Macquarie University, Ryde NSW 2109)

  • Julie McIvor

    (School of Economics and Finance, Queensland University of Technology, Gardens Point Campus, GPO Box 2434, Brisbane QLD 4001.)

Abstract

The multivariate normality of stock returns is a crucial assumption in many tests of assets pricing models. While past Australian research has examined the univariate normality of returns, univariate test statistics are unreliable for testing multivariate normality since they ignore the contemporaneous correlation between asset returns. This paper utilises a multivariate test procedure, based on the generalised method of moments, to test whether residuals from market model regressions are multivariate normal. The results suggest violations of the multivariate normality assumption which cast doubt over the validity over inferential procedures commonly used in the extant empirical literature.

Suggested Citation

  • Philip Gray & Egon Kalotay & Julie McIvor, 1998. "Testing the Multivariate Normality of Australian Stock Returns," Australian Journal of Management, Australian School of Business, vol. 23(2), pages 135-150, December.
    • Handle: RePEc:sae:ausman:v:23:y:1998:i:2:p:135-150
    DOI: 10.1177/031289629802300201
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    References listed on IDEAS

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    Cited by:

    1. Xin Ling, 2017. "Normality of stock returns with event time clocks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57, pages 277-298, April.

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