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Statistical Modeling of Stock Returns: Explanatory or Descriptive? A Historical Survey with Some Methodological Reflections

Listed author(s):
  • Phoebe Koundouri
  • Nikolaos Kourogenis

    ()

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

  • Nikitas Pittis

    ()

    (University of Piraeus, Greece)

The purpose of this paper is twofold: first, to survey the statistical models of stock returns that have been suggested in the finance literature since the middle of the twentieth century; second, to examine under the prism of the contemporary philosophy of science, which of the aforementioned models can be classified as explanatory and which as descriptive. Special emphasis is paid on tracing the interactions between the motivation for the birth of statistical models of stock returns in any given historical period and the concurrent changes of the theoretical paradigm in financial economics, as well as those of probability theory.

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Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1410.

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Date of creation: 18 Sep 2014
Handle: RePEc:aue:wpaper:1410
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  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.
  2. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
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  4. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
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  7. 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.
  8. Nikolaos Kourogenis & Nikitas Pittis, 2008. "Testing for a unit root under errors with just barely infinite variance," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(6), pages 1066-1087, November.
  9. 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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  17. 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.
  18. Eugene F. Fama, 1965. "Portfolio Analysis in a Stable Paretian Market," Management Science, INFORMS, vol. 11(3), pages 404-419, January.
  19. Larson, Arnold B., 1960. "Measurement of a Random Process in Futures Prices," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
  20. Blattberg, Robert C & Gonedes, Nicholas J, 1974. "A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices," The Journal of Business, University of Chicago Press, vol. 47(2), pages 244-280, April.
  21. Roll, Richard & Ross, Stephen A, 1980. " An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 35(5), pages 1073-1103, December.
  22. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, vol. 15(3), pages 373-394, March.
  23. Harry V. Roberts, 1959. "Stock‐Market “Patterns” And Financial Analysis: Methodological Suggestions," Journal of Finance, American Finance Association, vol. 14(1), pages 1-10, March.
  24. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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