Robustly Modelling the Scale and Shape Dynamics of Stock Return Distributions

36 Pages Posted: 15 May 2016 Last revised: 1 Feb 2018

See all articles by Jim E. Griffin

Jim E. Griffin

University of Kent; University of Kent - School of Mathematics, Statistics and Actuarial Science

Gelly Mitrodima

London School of Economics & Political Science (LSE) - Department of Statistics

Jaideep S. Oberoi

Kent Business School

Date Written: February 1, 2018

Abstract

We explore time variation in the shape of the conditional return distribution using a model of multiple quantiles. We propose a joint model of scale (proxied by the interquartile range) and other quantiles standardised by the scale. The model allows us to capture the scale and shape of the distribution in one step without making assumptions about the distribution of the underlying conditional shocks from the outset. We find that, once we capture the dynamics of the scale effectively, the time variation in the shape allows a simpler interpretation. The method is illustrated by application to stock price and stock index data and provides evidence that the conditional return distribution becomes heavier tailed at times of market stress.

Keywords: Dynamic multivariate quantile model, Return decomposition, Robust methods, CAViaR model

JEL Classification: C14, C22, C50, G19

Suggested Citation

Griffin, Jim E. and Mitrodima, Gelly and Oberoi, Jaideep S., Robustly Modelling the Scale and Shape Dynamics of Stock Return Distributions (February 1, 2018). Available at SSRN: https://ssrn.com/abstract=2777214 or http://dx.doi.org/10.2139/ssrn.2777214

Jim E. Griffin (Contact Author)

University of Kent ( email )

Cornwallis Building
Canterbury, Kent CT2 7NF
United Kingdom

HOME PAGE: http://www.kent.ac.uk/ims/personal/jeg28/index.htm

University of Kent - School of Mathematics, Statistics and Actuarial Science ( email )

Cornwallis Building
Canterbury, CT2 7NF
United Kingdom

Gelly Mitrodima

London School of Economics & Political Science (LSE) - Department of Statistics ( email )

Houghton Street
London, England WC2A 2AE
United Kingdom

Jaideep S. Oberoi

Kent Business School ( email )

University of Kent
Sibson Building, Parkwood Road
Canterbury, Kent CT2 7FS
United Kingdom

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