The Process of price formation and the skewness of asset returns
AbstractDistributions of assets returns exhibit a slight skewness. In this note we show that our model of endogenous price formation [Reimann 2006] creates an asymmetric return distribution if the price dynamics are a process in which consecutive trading periods are dependent from each other in the sense that opening prices equal closing prices of the former trading period. The corresponding parameter skewness (preference) parameter is estimated from daily prices from 01/01/1999 - 12/31/2004 for 9 large indices. For the S&P 500, the skewness distribution of all its constituting assets is also calculated. The skewness distribution due to our model is compared with the distribution of the empirical skewness values of the single assets.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 276.
Date of creation: Feb 2006
Date of revision:
skewness asset returns; price process;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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- R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
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