IDEAS home Printed from https://ideas.repec.org/a/fau/fauart/v54y2004i7-8p325-334.html
   My bibliography  Save this article

Defection of Traditional Standard Deviation Scaling of Capital Asset Returns

Author

Listed:
  • Vladimír Gazda
  • Karel Koøený
  • Tomáš Výrost

Abstract

In this paper, we investigate the adequacy of scaling, a method frequently used in estimation of standard deviation of stock returns. Scaling is based on the assumption that standard deviation is proportional to the square root of the length of the time interval of the sample (for example daily, monthly or annual data). We analyze the cases when this assumption is justified, and emphasize possible weaknesses of this procedure. As an example, we test the assumptions of scaling on three market indices: Slovak SAX, Czech PX-50 and the S&P 500 index. We conclude that in case of Czech and Slovak index we find significant deviations from stated assumptions. Hence, contrary to the common practice, time-series scaling cannot be used on all time series and requires prior careful examination of the analyzed data.

Suggested Citation

  • Vladimír Gazda & Karel Koøený & Tomáš Výrost, 2004. "Defection of Traditional Standard Deviation Scaling of Capital Asset Returns," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(7-8), pages 325-334, July.
  • Handle: RePEc:fau:fauart:v:54:y:2004:i:7-8:p:325-334
    as

    Download full text from publisher

    File URL: http://journal.fsv.cuni.cz/storage/980_s_325_334.pdf
    Download Restriction: no

    More about this item

    Keywords

    asset returns; normal distribution; white-noise process; random walk;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:54:y:2004:i:7-8:p:325-334. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova). General contact details of provider: http://edirc.repec.org/data/icunicz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.