The distribution of stock market returns and the market model

Hans Dillen and Bo Stoltz
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Hans Dillen: Economics Department, Sveriges Riksbank, Sweden
Bo Stoltz: Ministry of Finance, Sweden

Finnish Economic Papers, 1999, vol. 12, issue 1, 41-56

Abstract: In this paper the Market Model, estimated for 20 stocks on the Stockholm Stock Exchange, is examined under different assumptions regarding the distribution of the residuals. We find strong evidence that the residuals have a leptokurtic distribution and our results suggest that much of the leptokurticness can be attributed to a jump component in the distribution. Moreover, changes in the assumed distribution of the residuals can sometimes change the beta estimate by 20 percent or more. Our alternative estimators are more robust to extreme observations.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:fep:journl:v:12:y:1999:i:1:p:41-56

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