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Maximum Likelihood Estimates of Regression Coefficients with alpha-stable residuals and Day of Week effects in Total Returns on Equity Indices

Author

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  • John C. Frain

    () (Department of Economics, Trinity College Dublin)

Abstract

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.

Suggested Citation

  • John C. Frain, 2008. "Maximum Likelihood Estimates of Regression Coefficients with alpha-stable residuals and Day of Week effects in Total Returns on Equity Indices," Trinity Economics Papers tep0108, Trinity College Dublin, Department of Economics, revised May 2008.
  • Handle: RePEc:tcd:tcduee:tep0108
    as

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    File URL: http://www.tcd.ie/Economics/TEP/2008/TEP0108.pdf
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    References listed on IDEAS

    as
    1. Aleksander Janicki & Aleksander Weron, 1994. "Simulation and Chaotic Behavior of Alpha-stable Stochastic Processes," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook9401.
    2. Sullivan, Ryan & Timmermann, Allan & White, Halbert, 2001. "Dangers of data mining: The case of calendar effects in stock returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 249-286, November.
    3. Peter Hansen & Asger Lunde, 2003. "Testing the Significance of Calendar Effects," Working Papers 2003-03, Brown University, Department of Economics.
    4. Gibbons, Michael R & Hess, Patrick, 1981. "Day of the Week Effects and Asset Returns," The Journal of Business, University of Chicago Press, vol. 54(4), pages 579-596, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    alpha stable distribution; regression; day of week effects;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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