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Volatility and Stock Price Indexes

Author

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  • Kenneth W Clements

    (UWA Business School, The University of Western Australia)

  • H Y Izan

    (UWA Business School, The University of Western Australia)

  • Yihui Lan

    (UWA Business School, The University of Western Australia)

Abstract

The stochastic approach to index numbers has been successfully applied to the estimation of the Consumer Price Index (CPI). One distinct advantage of this approach is that it provides the whole distribution of the index, not simply a point estimate of the rate of inflation. In this paper, we extend the application of the stochastic approach to the estimation of a stock market index. We demonstrate how this approach can be used to identify “redundant stocks” that do not contribute significantly to the overall index. For index tracking purposes, these stocks can be safely excluded.

Suggested Citation

  • Kenneth W Clements & H Y Izan & Yihui Lan, 2011. "Volatility and Stock Price Indexes," Economics Discussion / Working Papers 11-16, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:11-16
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    References listed on IDEAS

    as
    1. Eric Blankmeyer, 2012. "Estimating an inflation index by quantile regression," Applied Economics Letters, Taylor & Francis Journals, vol. 19(2), pages 185-187, February.
    2. Clements, Kenneth W & Izan, H Y, 1981. "A Note on Estimating Divisia Index Numbers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 745-747, October.
    3. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-350, July.
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    Cited by:

    1. Yim, Ha-Neul & Riddell, Jordan R. & Wheeler, Andrew P., 2020. "Is the recent increase in national homicide abnormal? Testing the application of fan charts in monitoring national homicide trends over time," Journal of Criminal Justice, Elsevier, vol. 66(C).

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