Identifying multiple outliers in heavy-tailed distributions with an application to market crashes

Christian Schluter and Mark Trede

Journal of Empirical Finance, 2008, vol. 15, issue 4, pages 700-713

Abstract: Heavy-tailed distributions, such as the distribution of stock returns, are prone to generate large values. This renders difficult the detection of outliers. We propose a new outward testing procedure to identify multiple outliers in these distributions. A major virtue of the test is its simplicity. The performance of the test is investigated in several simulation studies. As a substantive empirical contribution we apply the test to Dow Jones Industrial Average return data and find that the Black Monday market crash was not a structurally unusual event.

Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:empfin:v:15:y:2008:i:4:p:700-713

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Journal of Empirical Finance is edited by R. T. Baillie, G. Bekaert, W. Ferson, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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