Working Paper

On the frequency of large stock returns: putting booms and busts into perspective

Abstract: Numerous articles have investigated the distribution of share prices, and find that the yields are leptokurtic. There is still controversy about the amount of leptokurtosis, and hence about the most appropriate distribution to use in modeling returns. This controversy has proven hard to resole, as the alternatives are non-nested. We propose to employ extreme value theory focusing exclusively on the larger observations, in order to assess the leptokurtosis within a unified framework. This enables one to generate robust probabilities on large changes, which put the recent stock market swings into historical perspective.

Keywords: Stock market; Stock - Prices;

Status: Published in Review of Economics and Statistics, February 1991, 73(1), pp. 18-24

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1988

Number: 1989-006