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Infinite Density at the Median and the Typical Shape of Stock Return Distributions

Author

Listed:
  • Chirok Han

    () (Korea University)

  • Jin Seo Cho

    () (Korea University)

  • Peter C. B. Phillips

    (Yale University, University of York, University of Auckland & Singapore Management University)

Abstract

Statistics are developed to test for the presence of an asymptotic discontinuity (or infinite density or peakedness) in a probability density at the median. The approach makes use of work by Knight (1998) on L1 estimation asymptotics in conjunction with non-parametric kernel density estimation methods. The size and power of the tests are assessed, and conditions under which the tests have good performance are explored in simulations. The new methods are applied to stock returns of leading companies across major U.S. industry groups. The results confirm the presence of infinite density at the median as a new significant empirical evidence for stock return distributions.

Suggested Citation

  • Chirok Han & Jin Seo Cho & Peter C. B. Phillips, 2009. "Infinite Density at the Median and the Typical Shape of Stock Return Distributions," Discussion Paper Series 0914, Institute of Economic Research, Korea University.
  • Handle: RePEc:iek:wpaper:0914
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w0914.pdf
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    References listed on IDEAS

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    Cited by:

    1. Cho, Jin Seo & Kim, Tae-hwan & Shin, Yongcheol, 2015. "Quantile cointegration in the autoregressive distributed-lag modeling framework," Journal of Econometrics, Elsevier, vol. 188(1), pages 281-300.
    2. Cho, Jin Seo & Han, Chirok & Phillips, Peter C.B., 2010. "Lad Asymptotics Under Conditional Heteroskedasticity With Possibly Infinite Error Densities," Econometric Theory, Cambridge University Press, vol. 26(03), pages 953-962, June.

    More about this item

    Keywords

    Asymptotic leptokurtosis; Infinite density at the median; Least absolute deviations; Kernel density estimation; Stock returns; Stylized facts;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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