HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS
Many of financial engineering theories are based on so-called “complete markets” and on the use of the Black-Scholes formula. The formula relies on the assumption that asset prices follow a log-normal distribution, or in other words, the daily fluctuations in prices viewed as percentage changes foll...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Nicolaus Copernicus University in Toruń
2017-12-01
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| Series: | Copernican Journal of Finance & Accounting |
| Subjects: | |
| Online Access: | https://apcz.umk.pl/CJFA/article/view/15266 |
| _version_ | 1797727591756464128 |
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| author | David Eden Paul Huffman John Holman |
| author_facet | David Eden Paul Huffman John Holman |
| author_sort | David Eden |
| collection | DOAJ |
| description | Many of financial engineering theories are based on so-called “complete markets” and on the use of the Black-Scholes formula. The formula relies on the assumption that asset prices follow a log-normal distribution, or in other words, the daily fluctuations in prices viewed as percentage changes follow a Gaussian distribution. On the contrary, studies of actual asset prices show that they do not follow a log-normal distribution. In this paper, we investigate several widely-used heavy-tailed distributions. Our results indicate that the Skewed t distribution has the best empirical performance in fitting the Canadian stock market returns. We claim the results are valuable for market participants and the financial industry. |
| first_indexed | 2024-03-12T11:01:53Z |
| format | Article |
| id | doaj.art-ddf5c18e614e4dda867fb1434ffa9c0a |
| institution | Directory Open Access Journal |
| issn | 2300-1240 2300-3065 |
| language | English |
| last_indexed | 2024-03-12T11:01:53Z |
| publishDate | 2017-12-01 |
| publisher | Nicolaus Copernicus University in Toruń |
| record_format | Article |
| series | Copernican Journal of Finance & Accounting |
| spelling | doaj.art-ddf5c18e614e4dda867fb1434ffa9c0a2023-09-02T05:33:03ZengNicolaus Copernicus University in ToruńCopernican Journal of Finance & Accounting2300-12402300-30652017-12-0162HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNSDavid Eden0Paul Huffman1John Holman2Bank of CanadaUniversity of ManitobaIllinois State UniversityMany of financial engineering theories are based on so-called “complete markets” and on the use of the Black-Scholes formula. The formula relies on the assumption that asset prices follow a log-normal distribution, or in other words, the daily fluctuations in prices viewed as percentage changes follow a Gaussian distribution. On the contrary, studies of actual asset prices show that they do not follow a log-normal distribution. In this paper, we investigate several widely-used heavy-tailed distributions. Our results indicate that the Skewed t distribution has the best empirical performance in fitting the Canadian stock market returns. We claim the results are valuable for market participants and the financial industry.https://apcz.umk.pl/CJFA/article/view/15266Value at RiskGSPTSESkewed t distribution |
| spellingShingle | David Eden Paul Huffman John Holman HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS Copernican Journal of Finance & Accounting Value at Risk GSPTSE Skewed t distribution |
| title | HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS |
| title_full | HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS |
| title_fullStr | HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS |
| title_full_unstemmed | HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS |
| title_short | HEAVY-TAILED DISTRIBUTIONS AND THE CANADIAN STOCK MARKET RETURNS |
| title_sort | heavy tailed distributions and the canadian stock market returns |
| topic | Value at Risk GSPTSE Skewed t distribution |
| url | https://apcz.umk.pl/CJFA/article/view/15266 |
| work_keys_str_mv | AT davideden heavytaileddistributionsandthecanadianstockmarketreturns AT paulhuffman heavytaileddistributionsandthecanadianstockmarketreturns AT johnholman heavytaileddistributionsandthecanadianstockmarketreturns |