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Aggregational Gaussianity and barely infinite variance in financial returns

Author

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  • Antypas, Antonios
  • Koundouri, Phoebe
  • Kourogenis, Nikolaos

Abstract

This paper aims at reconciling two apparently contradictory empirical regularities of financial returns, namely, the fact that the empirical distribution of returns tends to normality as the frequency of observation decreases (aggregational Gaussianity) combined with the fact that the conditional variance of high frequency returns seems to have a (fractional) unit root, in which case the unconditional variance is infinite. We provide evidence that aggregational Gaussianity and infinite variance can coexist, provided that all the moments of the unconditional distribution whose order is less than two exist. The latter characterizes the case of Integrated and Fractionally Integrated GARCH processes. Finally, we discuss testing for aggregational Gaussianity under barely infinite variance. Our empirical motivation derives from commodity prices and stock indices, while our results are relevant for financial returns in general.

Suggested Citation

  • Antypas, Antonios & Koundouri, Phoebe & Kourogenis, Nikolaos, 2013. "Aggregational Gaussianity and barely infinite variance in financial returns," Journal of Empirical Finance, Elsevier, vol. 20(C), pages 102-108.
  • Handle: RePEc:eee:empfin:v:20:y:2013:i:c:p:102-108
    DOI: 10.1016/j.jempfin.2012.11.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. BenSaïda, Ahmed & Slim, Skander, 2016. "Highly flexible distributions to fit multiple frequency financial returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 442(C), pages 203-213.
    2. Kei Katahira & Yu Chen & Gaku Hashimoto & Hiroshi Okuda, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Papers 1902.02040, arXiv.org.
    3. repec:eee:phsmap:v:524:y:2019:i:c:p:503-518 is not listed on IDEAS
    4. Elena Green & Daniel M. Heffernan, 2019. "An Agent-Based Model to Explain the Emergence of Stylised Facts in Log Returns," Papers 1901.05053, arXiv.org.

    More about this item

    Keywords

    Aggregational Gaussianity; Infinite variance; FIGARCH; Financial returns;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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