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On moment condition failure in German stock returns: an application of recent advances in extreme value statistics

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  • Thomas Lux

    (Department of Economics, University of Kiel, Olshausenstr. 40, D-24118 Kiel, Germany)

Abstract

This note reconsiders divergent results on the extremal behaviour of German stock returns that have been published recently. In particular, investigations of this issue have arrived at different conclusions regarding the finiteness of the second moment of the return distributions. Here we apply some newly developed, improved techniques for the estimation of the so-called tail index to the time series of returns on various German stocks. We find evidence indicating that in the vast majority of cases the tails are not fat enough to conform with an infinite-variance distribution. Conflicting results in previous studies are shown to be due to different a priori choices of the size of the tail region.

Suggested Citation

  • Thomas Lux, 2000. "On moment condition failure in German stock returns: an application of recent advances in extreme value statistics," Empirical Economics, Springer, vol. 25(4), pages 641-652.
    • Handle: RePEc:spr:empeco:v:25:y:2000:i:4:p:641-652
    Note: received: Dec. 1998/Final version received: April 2000
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    More about this item

    Keywords

    stock returns · extreme value theory · tail index estimation;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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