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The Distribution Of Standardized Futures Price Changes

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  • Venkateswaran, Meenakshi
  • Brorsen, B. Wade
  • Hall, Joyce A.

Abstract

The observed non-normality of futures price changes has been attributed to non-constant variance. This paper tests whether the non-normality is due to changing variances or additional factors. The data are adjusted for heteroskedasticity and the stability-under-addition test of stable distributions performed on the original and the rescaled data sets. Rescaled data are less leptokurtic than the original data, but the rescaled data are still not normal. Thus, factors other than changing variance may also be responsible for the observed leptokurticity of daily futures returns.

Suggested Citation

  • Venkateswaran, Meenakshi & Brorsen, B. Wade & Hall, Joyce A., 1988. "The Distribution Of Standardized Futures Price Changes," 1988 Annual Meeting, August 1-3, Knoxville, Tennessee 270288, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea88:270288
    DOI: 10.22004/ag.econ.270288
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    References listed on IDEAS

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    1. Hall, Joyce A. & Brorsen, B. Wade & Irwin, Scott H., 1989. "The Distribution of Futures Prices: A Test of the Stable Paretian and Mixture of Normals Hypotheses," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(1), pages 105-116, March.
    2. Epps, Thomas W & Epps, Mary Lee, 1976. "The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis," Econometrica, Econometric Society, vol. 44(2), pages 305-321, March.
    3. Benoit Mandelbrot & Howard M. Taylor, 1967. "On the Distribution of Stock Price Differences," Operations Research, INFORMS, vol. 15(6), pages 1057-1062, December.
    4. 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.
    5. McCulloch, J. Huston, 1985. "Interest-risk sensitive deposit insurance premia : Stable ACH estimates," Journal of Banking & Finance, Elsevier, vol. 9(1), pages 137-156, March.
    6. Upton, David E & Shannon, Donald S, 1979. "The Stable Paretian Distribution, Subordinated Stochastic Processes, and Asymptotic Lognormality: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 34(4), pages 1031-1039, September.
    7. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
    8. Eugene F. Fama, 1963. "Mandelbrot and the Stable Paretian Hypothesis," The Journal of Business, University of Chicago Press, vol. 36, pages 420-420.
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    3. Motengwe, Chris & Alagidede, Paul, 2016. "Maturity Effects in Futures Contracts on the SAFEX Market," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 55(4), December.
    4. Ram Bhar, 1994. "Modelling Yen Futures Return Using Daily Data From IMM and Simex," Working Paper Series 39, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    5. Raymond Knott & Marco Polenghi, 2006. "Assessing central counterparty margin coverage on futures contracts using GARCH models," Bank of England working papers 287, Bank of England.

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