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Density forecasting of the Dow Jones share index

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  • Öller, L-E
  • Stockhammar, P

Abstract

The distribution of differences in logarithms of the Dow Jones share index is compared to the normal (N), normal mixture (NM) and a weighted sum of a normal and an Assymetric Laplace distribution (NAL). It is found that the NAL fits best. We came to this result by studying samples with high, medium and low volatility, thus circumventing strong heteroscedasticity in the entire series. The NAL distribution also fitted economic growth, thus revealing a new analogy between financial data and real growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18582.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:18582

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Keywords: Density forecasting; heteroscedasticity; mixed Normal- Asymmetric Laplace distribution; Method of Moments estimation; connection with economic growth.;

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  1. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  3. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
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