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STOCK PRICE PROCESSES WITH DISCONTINUOUS TIME PATHS: AN EMPIRICAL EXAMINATION
Author(s) -
Akgiray Vedat,
Booth Geoffrey
Publication year - 1986
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1986.tb01117.x
Subject(s) - econometrics , stock (firearms) , jump diffusion , classification of discontinuities , jump , homogeneous , statistical hypothesis testing , stock price , economics , diffusion process , financial economics , mathematics , statistics , geology , geography , mathematical analysis , paleontology , physics , economy , archaeology , service (business) , quantum mechanics , combinatorics , series (stratigraphy)
This paper discusses the statistical properties of a mixed stochastic process and conducts a thorough empirical test of the process for an extensive group of common stocks and portfolios of stocks. It is found that a homogeneous diffusion process does not adequately describe stock price fluctuations and that there are significant discontinuities in the sample paths of stock prices. This result holds for both individual stocks and portfolios of various sizes. The statistical fit of a particular mixed diffusion‐jump process to sample data is also demonstrated.