Empirical Evidences on the Interconnectedness between Sampling and Asset Returns’ Distributions

36 Pages Posted: 11 May 2021

See all articles by Giuseppe Orlando

Giuseppe Orlando

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods; Università degli Studi di Camerino - School of Science and Technologies

Michele Bufalo

University of Rome I

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2020

Abstract

The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some literature, we find that the realized distributions of logarithmic returns, scaled or not by the standard deviations, are skewed and that they may be better fitted by t-skew distributions. Our finding holds true across asset classes, maturity and developed and developing markets. This may explain why models based on dynamic conditional score (DCS) have superior performance when the underlying distribution belongs to the t-skew family. Finally, we show how sampling and distribution of returns are strictly connected. This is of great importance as, for example, extrapolating yearly scenarios from daily performances may prove not to be correct.

Keywords: return distributions; t-skew; market volatility; correlation; equity markets; bond markets; FX

JEL Classification: G10; C10; C20; C16

Suggested Citation

Orlando, Giuseppe and Bufalo, Michele, Empirical Evidences on the Interconnectedness between Sampling and Asset Returns’ Distributions (December 12, 2020). Available at SSRN: https://ssrn.com/abstract=3843387 or http://dx.doi.org/10.2139/ssrn.3843387

Giuseppe Orlando (Contact Author)

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods ( email )

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Università degli Studi di Camerino - School of Science and Technologies ( email )

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Italy

Michele Bufalo

University of Rome I ( email )

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