TY - JOUR
T1 - Modeling Asset Returns with Alternative Stable Distributions
AU - Mittnik, Stefan
AU - Rachev, Svetlozar T.
N1 - Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 1993/1/1
Y1 - 1993/1/1
N2 - In the 1960's Benoit Mandelbrot and Eugene Fama argued strongly in favor of the stable Paretian distribution as a model for the unconditional distribution of asset returns. Although a substantial body of subsequent empirical studies supported this position, the stable Paretian model plays a minor role in current empirical work. While in the economics and finance literature stable distributions are virtually exclusively associated with stable Paretian distributions, in this paper we adopt a more fundamental view and extend the concept of stability to a variety of probabilistic schemes. These schemes give rise to alternative stable distributions, which we compare empirically using S&P 500 stock return data. In this comparison the Weibull distribution, associated with both the nonrandom-minimum and geometric-random summation schemes dominates the other stable distributions considered—including the stable Paretian model.
AB - In the 1960's Benoit Mandelbrot and Eugene Fama argued strongly in favor of the stable Paretian distribution as a model for the unconditional distribution of asset returns. Although a substantial body of subsequent empirical studies supported this position, the stable Paretian model plays a minor role in current empirical work. While in the economics and finance literature stable distributions are virtually exclusively associated with stable Paretian distributions, in this paper we adopt a more fundamental view and extend the concept of stability to a variety of probabilistic schemes. These schemes give rise to alternative stable distributions, which we compare empirically using S&P 500 stock return data. In this comparison the Weibull distribution, associated with both the nonrandom-minimum and geometric-random summation schemes dominates the other stable distributions considered—including the stable Paretian model.
KW - Weibull distribution
KW - financial modeling
KW - geometric stable distribution
KW - nonrandom stable distributions
UR - http://www.scopus.com/inward/record.url?scp=84958363567&partnerID=8YFLogxK
U2 - 10.1080/07474939308800266
DO - 10.1080/07474939308800266
M3 - Article
AN - SCOPUS:84958363567
VL - 12
SP - 261
EP - 330
JO - Econometric Reviews
JF - Econometric Reviews
SN - 0747-4938
IS - 3
ER -