Statistical Modeling of Stock Returns: Explanatory or Descriptive? A Historical Survey with Some Methodological Reflections

16 Pages Posted: 6 Jan 2016

See all articles by Phoebe Koundouri

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Nikolaos Kourogenis

University of Piraeus, Department of Banking and Financial Management

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management

Date Written: February 2016

Abstract

The purpose of this paper is twofold: first, to survey the statistical models of stock returns that have been suggested in the finance literature since the middle of the twentieth century; second, to examine under the prism of the contemporary philosophy of science, which of the aforementioned models can be classified as explanatory and which as descriptive. Special emphasis is paid on tracing the interactions between the motivation for the birth of statistical models of stock returns in any given historical period and the concurrent changes of the theoretical paradigm in financial economics, as well as those of probability theory.

Keywords: Brownian motion, Explanatory model, Market efficiency, Scientific explanation, Statistical model, Stock returns

Suggested Citation

Koundouri, Phoebe and Kourogenis, Nikolaos and Pittis, Nikitas, Statistical Modeling of Stock Returns: Explanatory or Descriptive? A Historical Survey with Some Methodological Reflections (February 2016). Journal of Economic Surveys, Vol. 30, Issue 1, pp. 149-164, 2016, Available at SSRN: https://ssrn.com/abstract=2711518 or http://dx.doi.org/10.1111/joes.12093

Phoebe Koundouri (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

Nikolaos Kourogenis

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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