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Moment condition failure Australian evidence

Author

Listed:
  • DE CEUSTER, Marc
  • ANNAERT, Jan
  • HODSGON, Allan

Abstract

Statistical population moments may be finite or infinite. Determining whether certain moments of a population are finite or not based on a finite sample turns out to be a very daunting and difficult task. If one assumes stock returns to behave according the sum stable law, characteristic exponent point estimates of approximately 1.5 are found for Australian stocks. This result is fully in line with previous US findings and implies that the population variance is infinite. Hill-estimates, on the other hand, are above 2 for all stocks, indicating that the second moments do exist. This conflicting result is resolved by showing that the (unconditional) sum stable hypothesis can be rejected firmly. We do this by setting up a simulation experiment, in which we show that combinations of the Hill-estimate and the characteristic exponent produced by the real data are extremely unlikely for sum stables. These results confirm the existence of at least second moments. There is a good chance that third moments exist as well but this calls for further research.

Suggested Citation

  • DE CEUSTER, Marc & ANNAERT, Jan & HODSGON, Allan, 2001. "Moment condition failure Australian evidence," Working Papers 2001010, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2001010
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    More about this item

    Keywords

    Sum stable distributions; Hill-estimator; Moments;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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