Abstract

http://ssrn.com/abstract=2436102
 


 



The Dynamic Power Law Model


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

May 1, 2014

Chicago Booth Research Paper No. 14-14
Fama-Miller Working Paper

Abstract:     
I propose a new measure of common, time-varying tail risk for large cross sections of stock returns. Stock return tails are described by a power law in which the power law exponent is allowed to transition smoothly through time as a function of recent data. It is motivated by asset pricing theory and is estimable via quasi-maximum likelihood. Estimates indicate substantial time variation in stock return tails, and that the risk of extreme returns rises in weak economic conditions.

Number of Pages in PDF File: 31

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Date posted: May 13, 2014  

Suggested Citation

Kelly, Bryan T., The Dynamic Power Law Model (May 1, 2014). Chicago Booth Research Paper No. 14-14; Fama-Miller Working Paper . Available at SSRN: http://ssrn.com/abstract=2436102 or http://dx.doi.org/10.2139/ssrn.2436102

Contact Information

Bryan T. Kelly (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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