Empirical Distributions of Stock Returns: European Securities Markets, 1990-95

Working Paper 97-23 Departamento de Economia de la Empresa

25 Pages Posted: 13 May 1997

See all articles by Felipe Aparicio

Felipe Aparicio

Charles III University of Madrid - Department of Statistics and Econometrics

Javier Estrada

IESE Business School

Date Written: April 1997

Abstract

The assumption that daily stock returns are normally distributed has long been disputed by the data. In this article we test (and clearly reject) the normality assumption using time series of daily stock returns for thirteen European securities markets. More importantly, we fit to the data four alternative specifications, find overall support for the scaled-t distribution (and partial support for a mixture of two Normal distributions), and quantify the magnitude of the error that stems from predicting the probability of obtaining returns in specified intervals by using the Normal distribution. We conclude by arguing that normality may be a plausible assumption for monthly (but not for daily) stock returns.

JEL Classification: G15

Suggested Citation

Aparicio Acosta, Felipe Miguel and Estrada, Javier, Empirical Distributions of Stock Returns: European Securities Markets, 1990-95 (April 1997). Working Paper 97-23 Departamento de Economia de la Empresa, Available at SSRN: https://ssrn.com/abstract=40558 or http://dx.doi.org/10.2139/ssrn.40558

Felipe Miguel Aparicio Acosta

Charles III University of Madrid - Department of Statistics and Econometrics ( email )

c/ Madrid 126
Getafe (Madrid), 28903
Spain

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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