On the Frequency of Large Stock Returns: Putting Booms and Busts into Perspective
Numerous articles have investigated the distribution of share prices, and find that the returns are fat tailed. Nevertheless, there is still controversy about the amount of probability mass in the tails, and hence about the most appropriate distribution to use in modeling returns. This controversy has proven hard to resolve, as the alternatives are non-nested. The authors employ extreme value theory, focusing exclusively on the larger observations in order to assess the tail shape within a unified framework. They find that at least the first two moments exist. This enables one to generate robust probabilities on large returns, which put the recent stock market swings into historical perspective. Copyright 1991 by MIT Press.
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Volume (Year): 73 (1991)
Issue (Month): 1 (February)
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