Exploring Breaks in the Distribution of Stock Returns: Empirical Evidence from Apple Inc.

54 Pages Posted: 16 Nov 2020

See all articles by Sebastien Lleo

Sebastien Lleo

NEOMA Business School

William T. Ziemba

University of British Columbia (UBC) - Sauder School of Business; Systemic Risk Centre - LSE

Jessica Li

Neoma Business School

Date Written: September 27, 2020

Abstract

We implement and test four leading families of unsupervised learning changepoint detection models to investigate the incidence, origins, and effects of breaks in the mean and variance of Apple’s stock returns distribution. These models reveal a sustained incidence of breaks, mainly in the variance. Empirical asset pricing models do not explain this result, even allowing for time-varying coefficients. The breaks occur in response to corporate events, particularly earnings releases and stock-related news. These findings have general implications beyond Apple. Estimation procedures for asset pricing models must address these breaks. Our findings also open event studies to new types of inquiry.

Keywords: changepoint methods, regime switching models, machine learning, factor models, empirical asset pricing, event studies

JEL Classification: C1, C22, C44,G12, G14, C32

Suggested Citation

Lleo, Sebastien and Ziemba, William T. and Li, Jessica, Exploring Breaks in the Distribution of Stock Returns: Empirical Evidence from Apple Inc. (September 27, 2020). Available at SSRN: https://ssrn.com/abstract=3700419 or http://dx.doi.org/10.2139/ssrn.3700419

Sebastien Lleo (Contact Author)

NEOMA Business School ( email )

Reims
France

William T. Ziemba

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-261-1343 (Phone)
604-263-9572 (Fax)

HOME PAGE: http://williamtziemba.com

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom

Jessica Li

Neoma Business School ( email )

59, rue Pierre Taittinger
Reims, 51100
France

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