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Stochastic processes, non-normal innovations, and the use of scaling ratios

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Author Info
Groenendijk, Patrick A. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)
Lucas, Andr‚
Vries, Casper G. de

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Abstract

Market efficiency tests that rely on the martingale difference be-havior of returns can be based on various volatility measures. This paper argues that, to be able to differentiate between dependence and fat-tailedness. one should look simultaneously at plots based on ab-solute returns and variances. If the distribution is heavy-tailed, this shows up in the absolute moment plots, but not in the variance re-lated plots. Linear dependence. by contrast, is revealed in both plots. We provide and discuss an analytical and a simulation experiment illustrating these points.

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Publisher Info
Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0058.

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Date of creation: 1997
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Handle: RePEc:dgr:vuarem:1997-58

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D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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References listed on IDEAS
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.:
  1. Matthew Richardson & James H. Stock, 1990. "Drawing Inferences From Statistics Based on Multi-Year Asset Returns," NBER Working Papers 3335, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Muller, Ulrich A. & Dacorogna, Michel M. & Olsen, Richard B. & Pictet, Olivier V. & Schwarz, Matthias & Morgenegg, Claude, 1990. "Statistical study of foreign exchange rates, empirical evidence of a price change scaling law, and intraday analysis," Journal of Banking & Finance, Elsevier, vol. 14(6), pages 1189-1208, December. [Downloadable!] (restricted)
  3. Lo, Andrew W. & MacKinlay, A. Craig, 1989. "The size and power of the variance ratio test in finite samples : A Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 40(2), pages 203-238, February. [Downloadable!] (restricted)
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  4. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October. [Downloadable!] (restricted)
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  5. Richardson, Matthew & Stock, James H., 1989. "Drawing inferences from statistics based on multiyear asset returns," Journal of Financial Economics, Elsevier, vol. 25(2), pages 323-348, December. [Downloadable!] (restricted)
  6. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(1), pages 41-66. [Downloadable!] (restricted)
    Other versions:
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(explanations, 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.)

  1. Patrick A. Groenendijk & André Lucas & Casper G. de Vries, 1998. "A Hybrid Joint Moment Ratio Test for Financial Time Series," Tinbergen Institute Discussion Papers 98-104/2, Tinbergen Institute. [Downloadable!]
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