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Statistical Modeling of Stock Returns: A Historical Survey with Methodological Reflections

Author

Listed:
  • Phoebe Koundouri

    (Dept. of International and European Economic Studies, Athens University of Economics and Business)

  • Nikolaos Kourogenis

    () (Department of Banking and Financial Management, University of Piraeus.)

  • Nikitas Pittis

    () (University of Piraeus, Greece)

Abstract

This paper aims at identifying the motivating forces that gave birth to the statistical models of asset returns since the beginning of the twentieth century. The major question addressed is: Where do statistical models of asset returns come from?" This central question encompasses a number of secondary ones: What do these models do? Do they explain or simply describe the empirical regularities of asset returns, identified at different historical periods? If explanation provides `something', over and above description, then how can it be defined? Moreover, how is this reflected on explanatory versus descriptive models of asset returns? In the context of the models identified as explanatory, do these models offer an actual explanation for the regularities of interest or merely a potential explanation? Related to the last question, does the realism of the assumptions underlying the explanatory models matter? Has the literature adopted a realist or an instrumentalist attitude towards the explanatory models of asset returns? Our answers to these questions are being informed by our attempts to draw some analogies between the main issues concerning the statistical modelling of asset prices and those concerning the theoretical modelling of the Brownian motion in Physics.

Suggested Citation

  • Phoebe Koundouri & Nikolaos Kourogenis & Nikitas Pittis, "undated". "Statistical Modeling of Stock Returns: A Historical Survey with Methodological Reflections," DEOS Working Papers 1226, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1226
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    File URL: http://wpa.deos.aueb.gr/docs/history50_FINAL.pdf
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    References listed on IDEAS

    as
    1. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
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    3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    4. Phoebe Koundouri & Nikolaos Kourogenis, 2011. "On the Distribution of Crop Yields: Does the Central Limit Theorem Apply?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1341-1357.
    5. Praetz, Peter D, 1972. "The Distribution of Share Price Changes," The Journal of Business, University of Chicago Press, vol. 45(1), pages 49-55, January.
    6. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    7. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
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    13. F. W. Taussig, 1921. "Is Market Price Determinate?," The Quarterly Journal of Economics, Oxford University Press, vol. 35(3), pages 394-411.
    14. Antonios Antypas & Phoebe Koundouri & Nikolaos Kourogenis, 2010. "Aggregational Gaussianity And Barely Infinite Variance In Crop Prices," DEOS Working Papers 1001, Athens University of Economics and Business.
    15. Francq, Christian & Zako an, Jean-Michel, 2006. "Mixing Properties Of A General Class Of Garch(1,1) Models Without Moment Assumptions On The Observed Process," Econometric Theory, Cambridge University Press, vol. 22(05), pages 815-834, October.
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