Testing the Bivariate Mixture Hypothesis Using German Stock Market Data

Universitaet Tuebingen,Wirtschaftswissenschaftliche Fakultaet,Diskussionsbeitrag Nr. 67.

Posted: 2 Jul 1998

See all articles by Robert Jung

Robert Jung

University of Hohenheim - Institute of Economics

Roman Liesenfeld

University of Cologne, Department of Economics

Date Written: March 1996

Abstract

According to the bivariate mixture hypothesis (BMH) as proposed by Tauchen and Pitts (1983) and Harris (1986, 1987) the daily price changes and the corresponding trading volume on speculative markets follow a joint mixture of distributions with the unobservable number of daily information events serving as the mixing variable. Using German stock market data of 15 major companies the distributional properties of the BMH is tested employing maximum-likelihood as well as generalized method of moments estimation techniques. In addition to providing a new approach for the pointwise estimation of the latent information arrival rate based on the maximum-likelihood method, we investigate the time-series properties of the BMH. The major results can be summarized as follows: (i) the distributional characteristics of the data (especially leptokurtosis and skewness in the distribution of price changes and volume respectively) cannot be explained satisfactorily by the BMH; univariate mixture models for price changes and trading volume separately reveal a possible specification error in the model; (ii) a univariate normal mixture model can account for the observed distributional characteristics of price changes; (iii) the estimated process of the latent information rate cannot fully explain the time-series characteristics of the data (especially the volatility clustering or ARCH-effects).

JEL Classification: G15, C52

Suggested Citation

Jung, Robert C. and Liesenfeld, Roman, Testing the Bivariate Mixture Hypothesis Using German Stock Market Data (March 1996). Universitaet Tuebingen,Wirtschaftswissenschaftliche Fakultaet,Diskussionsbeitrag Nr. 67., Available at SSRN: https://ssrn.com/abstract=7313

Robert C. Jung (Contact Author)

University of Hohenheim - Institute of Economics ( email )

Schloss-Mittelhof (Ost)
70593 Stuttgart
Germany

Roman Liesenfeld

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 Köln
Germany

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