Empirical Evidences on the Interconnectedness between Sampling and Asset Returns’ Distributions

Giuseppe Orlando and Michele Bufalo
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Michele Bufalo: Department of Methods and Models for Economics, Università degli Studi di Roma “La Sapienza”, Territory and Finance, Via del Castro Laurenziano 9, 00185 Roma, Italy

Risks, 2021, vol. 9, issue 5, 1-35

Abstract: The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some literature, we find that the realized distributions of logarithmic returns, scaled or not by the standard deviations, are skewed and that they may be better fitted by t-skew distributions. Our finding holds true across asset classes, maturity and developed and developing markets. This may explain why models based on dynamic conditional score (DCS) have superior performance when the underlying distribution belongs to the t-skew family. Finally, we show how sampling and distribution of returns are strictly connected. This is of great importance as, for example, extrapolating yearly scenarios from daily performances may prove not to be correct.

Keywords: return distributions; t-skew; market volatility; correlation; equity markets; bond markets; FX (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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