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A new procedure for pre-testing the distribution properties of Stock returns

Author

Listed:
  • Afees A. Salisu

    (Centre for Econometric and Allied Research, University of Ibadan)

  • Ibrahim D. Raheem

    (School of Economics, University of Kent, Canterbury, UK)

Abstract

The study offers a new procedure that helps determine the best distribution prior to modeling stock returns with GARCH-type models. Specifically, it demonstrates that pre-testing the residuals of stock returns for the best distribution can help to identify the appropriate GARCH error distribution regardless of the choice of GARCH-type model. This approach is robust to alternative data frequencies and different stock markets such as those of G7 countries

Suggested Citation

  • Afees A. Salisu & Ibrahim D. Raheem, 2018. "A new procedure for pre-testing the distribution properties of Stock returns," Working Papers 057, Centre for Econometric and Allied Research, University of Ibadan.
    • Handle: RePEc:cui:wpaper:0057
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    More about this item

    Keywords

    Stock returns; GARCH-type models; Error distributions;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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