Laplace versus the Normal Distribution for Daily Stock Market Returns
7 Pages Posted: 12 Nov 2019
Date Written: November 2, 2019
Daily stock market return distributions seem to have tails that are much fatter than Normal Distribution models. This paper examines the possibility of the Laplace Distribution as a better alternative for modeling daily stock returns. Visual inspection of Q-Q plots seem to confirm the Laplace Distribution better fit to the data. The Laplace Distribution also managed to outperform the Normal Distribution in the K-S statistical tests, while being rejected by A-D tests. Although it seems like an improvement on the Normal hypothesis, the Laplace Distribution remains far from a perfect fit for real world stock market daily returns.
Keywords: Laplace Distribution, stock market, daily returns
JEL Classification: G10
Suggested Citation: Suggested Citation