The Behaviour of the Distributions of Stock Returns: An Analysis of the European Market Using the Pearson System of Continuous Probability Distributions

Posted: 13 May 2012

See all articles by Fabio Pizzutilo

Fabio Pizzutilo

Università degli Studi di Bari “Aldo Moro”

Date Written: May 11, 2012

Abstract

We employ the Pearson system of frequency curves to analyse the behaviour of unconditional daily return distributions for all the shares that constitute the STOXX Europe 600 index. Our results show that over finite time periods of analysis the distributions are adequately described as type IV. The occasional exceptions are linked strictly to extraordinary events that result in abnormal returns. They are more frequent if short time intervals are examined. When an infinite time of analysis is assumed, the results do not reject the hypothesis that the behaviour of stock returns is symmetrical and that it is of type VII, which is a special case of type IV that subsumes the Student’s t and the Cauchy distributions and is easier to deal with in practice.

Keywords: Pearson system, type IV, type VII, European equity market

JEL Classification: G11

Suggested Citation

Pizzutilo, Fabio, The Behaviour of the Distributions of Stock Returns: An Analysis of the European Market Using the Pearson System of Continuous Probability Distributions (May 11, 2012). Applied Financial Economics, Vol. 22, No. 20, 2012, Available at SSRN: https://ssrn.com/abstract=2056821

Fabio Pizzutilo (Contact Author)

Università degli Studi di Bari “Aldo Moro” ( email )

largo Abbazia S. Scolastica, 53
Bari, 70124
Italy

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