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Maximum Likelihood Estimates of Regression Coefficients with alpha-stable residuals and Day of Week effects in Total Returns on Equity Indices

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Author Info
John C. Frain () (Department of Economics, Trinity College Dublin)

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Abstract

This Paper summarizes the theory of Maximum Likelihood Estimation of regressions with alpha-stable residuals. Day of week effects in returns on equity indices, adjusted for dividends (total returns) are estimated and tested using this and traditional OLS methodology. I find that the alpha-stable methodology is feasible. There are some differences in the results from the two methodologies. The conclusion remains that if individual coefficients are of interest and the residuals have fat tails and a possible alpha-stable distribution, the results can be checked for robustness using methods such as those employed here.

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Publisher Info
Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0108.

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Length: 26 pages
Date of creation: May 2008
Date of revision: May 2008
Handle: RePEc:tcd:tcduee:tep0108

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Related research
Keywords: alpha stable distribution; regression; day of week effects;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Econometric and Statistical Methods; Specific Distributions
C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  1. Gibbons, Michael R & Hess, Patrick, 1981. "Day of the Week Effects and Asset Returns," Journal of Business, University of Chicago Press, vol. 54(4), pages 579-96, October. [Downloadable!] (restricted)
  2. Sullivan, Ryan & Timmermann, Allan & White, Halbert, 2001. "Dangers of data mining: The case of calendar effects in stock returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 249-286, November. [Downloadable!] (restricted)
  3. Peter Reinhard Hansen & Asger Lunde & James M. Nason, 2005. "Testing the significance of calendar effects," Working Paper 2005-02, Federal Reserve Bank of Atlanta. [Downloadable!]
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