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Empirical distributions of stock returns: Paris stock market, 1980-2003

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  • Stella Kanellopoulou
  • Epaminondas Panas

Abstract

The accurate specification of returns distributions has important implications in financial economics. A common practice in financial econometrics is to assume that the logarithms of stock returns are independent and identically distributed and follow a Normal distribution. However, daily stock returns display significant departures from Normality, having fatter tails and more peakedness. This study presents an alternative class of distributions, Levy-stable distributions, which can account for the observed skewness, kurtosis and fat tails, considering a sample of daily returns for nine stocks in Paris Market. Moreover, estimating the Levy-index allows us to determine long-memory behaviour of stock returns. Additionally, this study also tests long-memory hypothesis through an estimation of ARFIMA models. A comparative analysis of both approaches suggests the existence of long-memory in Paris Stock Exchange. The implication of the present work is that Levy-stable distributions are used to better approximate returns distributions and also to explore long-memory effects of stock returns.

Suggested Citation

  • Stella Kanellopoulou & Epaminondas Panas, 2008. "Empirical distributions of stock returns: Paris stock market, 1980-2003," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1289-1302.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:16:p:1289-1302
    DOI: 10.1080/09603100701630030
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    Cited by:

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    2. Epaminondas Panas & Vassilia Ninni, 2010. "The Distribution of London Metal Exchange Prices: A Test of the Fractal Market Hypothesis," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 192-210.
    3. Roberto Ortiz & Mauricio Contreras & Marcelo Villena, 2015. "On the Efficient Market Hypothesis of Stock Market Indexes: The Role of Non-synchronous Trading and Portfolio Effects," Papers 1510.03926, arXiv.org.

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