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Density forecasting of the Dow Jones share index

Author

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  • Öller, L-E
  • Stockhammar, P

Abstract

The distribution of differences in logarithms of the Dow Jones share index is compared to the normal (N), normal mixture (NM) and a weighted sum of a normal and an Assymetric Laplace distribution (NAL). It is found that the NAL fits best. We came to this result by studying samples with high, medium and low volatility, thus circumventing strong heteroscedasticity in the entire series. The NAL distribution also fitted economic growth, thus revealing a new analogy between financial data and real growth.

Suggested Citation

  • Öller, L-E & Stockhammar, P, 2009. "Density forecasting of the Dow Jones share index," MPRA Paper 18582, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18582
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    References listed on IDEAS

    as
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    3. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-883, November.
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    More about this item

    Keywords

    Density forecasting; heteroscedasticity; mixed Normal- Asymmetric Laplace distribution; Method of Moments estimation; connection with economic growth.;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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