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The Distribution of the Returns of Japanese Stocks and Portfolios

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  • Fabio Pizzutilo

Abstract

The behaviour of the distribution of stock returns is of fundamental importance in financial economics, in view of its direct bearing on the descriptive validity of any theoretical model. We analysed the behaviour of Japanese stock return distributions using the Pearson system of frequency curves to determine whether a) the distributions of the returns of the shares listed in the Nikkei 225 can be described by a single type of distribution; b) the length of the time period used for the analysis affects the behaviour of the distributions, and c) the distributions of the returns of portfolios of Japanese stocks follow similar patterns of behaviour. We found that all the shares listed on the Nikkei 225 may be described by the Pearson Type IV distribution. Other behaviours are occasionally observable but only when short time periods are used in the analysis, suggesting that the length of the period is not a variable that has any significant effect on the behaviour of Japanese stock returns. When the returns of portfolios of Japanese stocks are examined, the results are more robust and exceptions to the Pearson type IV rule are less common and are confined to very short time periods of analysis. We discuss the implications of our findings for financial modelling. To the best of our knowledge, we provide the first such analysis for the Japanese market.

Suggested Citation

  • Fabio Pizzutilo, 2013. "The Distribution of the Returns of Japanese Stocks and Portfolios," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(9), pages 1249-1259.
  • Handle: RePEc:asi:aeafrj:v:3:y:2013:i:9:p:1249-1259:id:1083
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    Cited by:

    1. Stavros Stavroyiannis, 2016. "Value-at-Risk and backtesting with the APARCH model and the standardized Pearson type IV distribution," Papers 1602.05749, arXiv.org.
    2. Sree Vinutha Venkataraman & S. V. D. Nageswara Rao, 2016. "Estimation of dynamic VaR using JSU and PIV distributions," Risk Management, Palgrave Macmillan, vol. 18(2), pages 111-134, August.

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