Stochastic processes, non-normal innovations, and the use of scaling ratios

Patrick A. Groenendijk, Andre Lucas and Casper G. de Vries
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Patrick A. Groenendijk: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics

No 58, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: Market efficiency tests that rely on the martingale difference be-havior of returns can be based on various volatility measures. This paper argues that, to be able to differentiate between dependence and fat-tailedness. one should look simultaneously at plots based on ab-solute returns and variances. If the distribution is heavy-tailed, this shows up in the absolute moment plots, but not in the variance re-lated plots. Linear dependence. by contrast, is revealed in both plots. We provide and discuss an analytical and a simulation experiment illustrating these points.

JEL-codes: D51 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:vua:wpaper:1997-58

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