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Volatility and stock price indexes

Author

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  • Kenneth W. Clements
  • H. Y. Izan
  • Yihui Lan

Abstract

The stochastic approach to index numbers has been successfully applied to the estimation of inflation, the world interest rate and international competitiveness. One distinct advantage of this approach is that it provides the whole distribution of the index, not simply one value. In this article, we extend the stochastic approach to the estimation of a stock market index. We demonstrate how this approach can be used to identify ‘redundant stocks’ that do not contribute significantly to the overall index. For index tracking purposes, these stocks can be safely excluded.

Suggested Citation

  • Kenneth W. Clements & H. Y. Izan & Yihui Lan, 2013. "Volatility and stock price indexes," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3255-3262, August.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:22:p:3255-3262
    DOI: 10.1080/00036846.2012.703315
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    References listed on IDEAS

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    1. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-350, July.
    2. Eric Blankmeyer, 2012. "Estimating an inflation index by quantile regression," Applied Economics Letters, Taylor & Francis Journals, vol. 19(2), pages 185-187, February.
    3. Clements, Kenneth W & Izan, H Y, 1981. "A Note on Estimating Divisia Index Numbers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 745-747, October.
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    1. Yim, Ha-Neul & Riddell, Jordan R. & Wheeler, Andrew P., 2020. "Is the recent increase in national homicide abnormal? Testing the application of fan charts in monitoring national homicide trends over time," Journal of Criminal Justice, Elsevier, vol. 66(C).

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