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The distribution of stock market returns and the market model

Author

Listed:
  • Hans Dillen

    (Economics Department, Sveriges Riksbank, Sweden)

  • Bo Stoltz

    (Ministry of Finance, Sweden)

Abstract

In this paper the Market Model, estimated for 20 stocks on the Stockholm Stock Exchange, is examined under different assumptions regarding the distribution of the residuals. We find strong evidence that the residuals have a leptokurtic distribution and our results suggest that much of the leptokurticness can be attributed to a jump component in the distribution. Moreover, changes in the assumed distribution of the residuals can sometimes change the beta estimate by 20 percent or more. Our alternative estimators are more robust to extreme observations.

Suggested Citation

  • Hans Dillen & Bo Stoltz, 1999. "The distribution of stock market returns and the market model," Finnish Economic Papers, Finnish Economic Association, vol. 12(1), pages 41-56, Spring.
    • Handle: RePEc:fep:journl:v:12:y:1999:i:1:p:41-56
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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