The paper aims at contributing to the literature that tries to overcome the classical mean-variance approach to portfolio selection by investigating the behavior of Italian stock return distributions through the Pearson system of frequency curves. Results show that over finite time horizons, the type IV distribution describes the behaviour of almost all returns on stocks. The occasional exceptions to this rule appear to be linked only with the occurrence of extraordinary events in the life of a company. The exceptions are more common when short time horizons are used to examine the data. When an infinite time horizon is assumed, the results are consistent with the hypothesis that the distributions are of type VII, which is a special, symmetrical and hyperkurtotical case of type IV distribution that subsumes the Student's t and the Cauchy distributions, and is easier to deal with in practice.

WHAT DO STOCK RETURN DISTRIBUTIONS LOOK LIKE? EVIDENCE FROM THE ITALIAN MARKET

PIZZUTILO, FABIO
2011

Abstract

The paper aims at contributing to the literature that tries to overcome the classical mean-variance approach to portfolio selection by investigating the behavior of Italian stock return distributions through the Pearson system of frequency curves. Results show that over finite time horizons, the type IV distribution describes the behaviour of almost all returns on stocks. The occasional exceptions to this rule appear to be linked only with the occurrence of extraordinary events in the life of a company. The exceptions are more common when short time horizons are used to examine the data. When an infinite time horizon is assumed, the results are consistent with the hypothesis that the distributions are of type VII, which is a special, symmetrical and hyperkurtotical case of type IV distribution that subsumes the Student's t and the Cauchy distributions, and is easier to deal with in practice.
978-960-466-086-5
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11586/8528
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