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A model for stock return distribution
Author(s) -
Linden Mikael
Publication year - 2001
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.149
Subject(s) - economics , econometrics , stock (firearms) , laplace transform , laplace distribution , stock market , random variable , exponential distribution , mathematics , financial economics , statistics , mechanical engineering , mathematical analysis , paleontology , horse , engineering , biology
The Laplace mixture distribution for stock share returns is derived from conditional N (0, σ 2 ) distribution. The conditioning variable, σ 2 , is assumed to be an exponentially distributed random variable. This offers a natural stochastic interpretation of the risk involved with the stock share. Maximum likelihood (ML) estimates for returns of the 20 most traded shares and the aggregate index of the Helsinki stock market in late 1980s do not reject the Laplace distribution model. The results extend to returns over longer periods than 1 day. Copyright © 2001 John Wiley & Sons, Ltd.