What distinguishes individual stocks from the index?
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TítuloWhat distinguishes individual stocks from the index?
Fecha de publicación2010
Stochastic volatility models decompose the time series of financial returns into the product of a volatility factor and an iid noise factor. Assuming a slow dynamic for the volatility factor, we show via nonparametric ... [+]
Stochastic volatility models decompose the time series of financial returns into the product of a volatility factor and an iid noise factor. Assuming a slow dynamic for the volatility factor, we show via nonparametric tests that both the index as well as its individual stocks share a common volatility factor. While the noise component is Gaussian for the index, individual stock returns turn out to require a leptokurtic noise. Thus we propose a two-component model for stocks, given by the sum of Gaussian noise, which reflects market-wide fluctuations, and Laplacian noise, which incorporates firm-specific factors such as firm profitability or growth performance, both of which are known to be Laplacian distributed. In the case of purely Gaussian noise, the chi-squared probability for the density of individual stock returns is typically on the order of 10-20, while it increases to values of O(1) by adding the Laplace component. [-]
Cita bibliográficaThe European Physical Journal B ( 2010), 73, 1, p 23-28
Tipo de documentoinfo:eu-repo/semantics/article
Derechos de acceso
(c) EDP Sciences, Società Italiana di Fisica, Springer-Verlag 2009
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