On Moment Condition Failure in German Stock Returns: An Application of Recent Advances in Extreme Value Statistics

Posted: 10 Apr 2001

See all articles by Thomas Lux

Thomas Lux

University of Kiel - Institute of Economics; University of Bonn - Economic Science Area

Abstract

This note reconsiders divergent results on the extremal behaviour of German stock returns that have been published recently. In particular, investigations of this issue have arrived at different conclusions regarding the finiteness of the second moment of the return distributions. Here we apply some newly developed, improved techniques for the estimation of the so-called tail index to the time series of returns on various German stocks. We find evidence indicating that in the vast majority of cases the tails are not fat enough to conform with an infinite-variance distribution. Conflicting results in previous studies are shown to be due to different a priori choices of the size of the tail region.

Keywords: stock returns, extreme value theory, tail index estimation

JEL Classification: C12, G14

Suggested Citation

Lux, Thomas, On Moment Condition Failure in German Stock Returns: An Application of Recent Advances in Extreme Value Statistics. Available at SSRN: https://ssrn.com/abstract=256722

Thomas Lux (Contact Author)

University of Kiel - Institute of Economics ( email )

Olshausenstr. 40
D-24118 Kiel, 24098
Germany

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49-228-73-9519 (Phone)
+49-228-73-7953 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
814
PlumX Metrics