A model for stock returns and volatility

Tao Ma and R.A. Serota

Physica A: Statistical Mechanics and its Applications, 2014, vol. 398, issue C, 89-115

Abstract: We prove that Student’s t-distribution provides one of the better fits to returns of S&P component stocks and the generalized inverse gamma distribution best fits VIX and VXO volatility data. We further prove that stock returns are best fit by the product distribution of the generalized inverse gamma and normal distributions. We find Brown noise in VIX and VXO time series and explain the mean and the variance of the relaxation times on approach to the steady-state distribution.

Keywords: Volatility; Stock returns; Distribution; Stochastic models (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:398:y:2014:i:c:p:89-115

DOI: 10.1016/j.physa.2013.11.032

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