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How Prevalent Are Stable‐Paretian Distributed Financial Variables?
Author(s) -
Lau HonShiang,
Gribbin Donald W.,
Harris Randy
Publication year - 1992
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1992.tb00446.x
Subject(s) - futures contract , variable (mathematics) , stock exchange , econometrics , economics , financial modeling , variety (cybernetics) , financial market , distribution (mathematics) , financial economics , finance , mathematics , statistics , mathematical analysis
Many studies have claimed that the stable‐Paretian distribution should be used to model a wide variety of financial variables, ranging from stock and futures prices to exchange rates. Using a newly developed method, this study shows that the stable distribution is unsuitable for modeling most financial variables that are stable‐distributed. We found that the distributions of a few accounting ratios may be stable. Our conclusions support a change in the future directions of financial‐variable modeling.