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The Distribution of Stock Market Returns: 1958-1973

Author

Listed:
  • Peter Praetz
  • Edward J.G. Wilson

    (Monash University. Valuable comments from Ray Ball are gratefully acknowledged. Thanks are also due to Philip Brown for the use of Version II of his price relative file.)

Abstract

The empirical frequency distributions of continuously-compounded monthly share returns on the Melbourne Stock Exchange over 1958-73 are studied for individual securities and portfolios. The typical distributional shape is observed and the stable Paretian and Student t distributions are fitted to the returns. The latter clearly is superior and even normality is a reasonable approximation for medium sized portfolios. The most likely explanation seems to be non-stationarity in the generating process for returns, rather than infinite-variance distributions or data errors. The implications for future empirical work and the theory of asset pricing are discussed.

Suggested Citation

  • Peter Praetz & Edward J.G. Wilson, 1978. "The Distribution of Stock Market Returns: 1958-1973," Australian Journal of Management, Australian School of Business, vol. 3(1), pages 79-90, April.
    • Handle: RePEc:sae:ausman:v:3:y:1978:i:1:p:79-90
    DOI: 10.1177/031289627800300106
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    References listed on IDEAS

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    1. repec:bla:kyklos:v:26:y:1973:i:3:p:576-99 is not listed on IDEAS
    2. Blattberg, Robert C & Gonedes, Nicholas J, 1974. "A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices," The Journal of Business, University of Chicago Press, vol. 47(2), pages 244-280, April.
    3. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    4. Ray Ball & Philip Brown & Frank J. Finn, 1977. "Share Capitalization Changes, Information, And the Australian Equity Market," Australian Journal of Management, Australian School of Business, vol. 2(2), pages 105-125, October.
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    Cited by:

    1. Xin Ling, 2017. "Normality of stock returns with event time clocks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57, pages 277-298, April.

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