Maximum Likelihood Estimates of Regression Coefficients with alpha-stable residuals and Day of Week effects in Total Returns on Equity Indices
This Paper summarizes the theory of Maximum Likelihood Estimation of regressions with alpha-stable residuals. Day of week effects in returns on equity indices, adjusted for dividends (total returns) are estimated and tested using this and traditional OLS methodology. I find that the alpha-stable methodology is feasible. There are some differences in the results from the two methodologies. The conclusion remains that if individual coefficients are of interest and the residuals have fat tails and a possible alpha-stable distribution, the results can be checked for robustness using methods such as those employed here.
|Date of creation:||May 2008|
|Date of revision:||May 2008|
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"Testing the significance of calendar effects,"
FRB Atlanta Working Paper
2005-02, Federal Reserve Bank of Atlanta.
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