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A skew test on financial returns in the Colombian market

Author

Listed:
  • Marisol Valencia

    (Universidad Nacional de Colombia)

  • Alejandro Bedoya

    (Universidad Nacional de Colombia)

Abstract

The characterization of financial returns depends heavily on probabilistic behavior, which can be ill-fitted, thus leading to inappropriate economic decisions concerning asset pricing, portfolio allocation and/or the measurement of market risk. In this paper, we propose a test to determine the adjustment of the returns of the General Index of the Colombian Stock Exchange (IGBC) to the following distributions: Normal, Skew Normal, and Skew T. In addition, we measure the level of bias and compare our test’s performance with an alternative test used only for detecting asymmetry. We find that the proposed test allows for characterizing returns in the Colombian stock market with one of the probability distributions, unlike the other test, which only provides a warning about the existence of bias and does not ascertain the distribution representing its behavior.

Suggested Citation

  • Marisol Valencia & Alejandro Bedoya, 2014. "A skew test on financial returns in the Colombian market," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 80, pages 79-102, Enero-Jun.
    • Handle: RePEc:lde:journl:y:2014:i:80:p:79-102
    DOI: 10.17533/udea.le.n80a3
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    More about this item

    Keywords

    Investment Decisions; Financial Economics; Specific Distributions; Behavioral Finance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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