Hostname: page-component-cc8bf7c57-qfg88 Total loading time: 0 Render date: 2024-12-11T23:04:37.207Z Has data issue: false hasContentIssue false
  • English
  • Français

The Distribution of Futures Prices: A Test of the Stable Paretian and Mixture of Normals Hypotheses

Published online by Cambridge University Press:  06 April 2009

Joyce A. Hall ,
B. Wade Brorsen  and
Scott H. Irwin
Get access Rights & Permissions [Opens in a new window]

Abstract

Two alternate hypotheses, the stable Paretian and mixture of normals, have been proposed to explain the observed thick-tailed distributions of futures price movements. The two hypotheses are tested by applying the stability-under-addition test of stable distribution parameters to twenty lengthy time series of changes in daily closing futures prices. Tests are conducted on both the original data series and randomized data. The results offer support for the mixture of normals hypothesis.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 1 , March 1989 , pp. 105 - 116
Copyright
Copyright © School of Business Administration, University of Washington 1989

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Anderson, R. W. “Some Determinants of the Volatility of Futures Prices.” Journal of Futures Markets, 5 (Fall 1985), 331–348.CrossRefGoogle Scholar
Barnea, A., and Downes, D. H.. “A Re-examination of the Empirical Distribution of Stock Price Changes.” Journal of the American Statistical Association, 168 (06 1973), 348–350.CrossRefGoogle Scholar
Blattberg, R. C., and Gonedes, N. J.. “A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices.” Journal of Business, 47 (04 1974), 244–280.CrossRefGoogle Scholar
Brenner, M. “On the Stability of the Distributions of the Market Component in Stock Price Changes.’ Journal of Financial and Quantitative Analysis, 9 (12 1974), 945–961.Google Scholar
Brorsen, B. W., and Irwin, S. H.. “‘Futures Funds and Price Volatility.” The Review of Futures Markets, 6 (No. 2, 1987), 118–138.Google Scholar
Clark, P. K. “A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices.” Econometrica, 41 (01 1973), 135–155.Google Scholar
Cornew, R. W. “Response to a Comment on ‘Stable Distributions, Futures Prices, and the Measurement of Trading Performance.” Journal of Futures Markets, 6 (Winter 1986), 677–680.CrossRefGoogle Scholar
Cornew, R. W.; Town, D. E.; and Crowson, L. D.. “Stable Distributions, Futures Prices, and the Measurement of Trading Performance.” The Journal of Futures Markets, 4 (Fall 1984), 531–557.CrossRefGoogle Scholar
Doukas, J., and Rahman, A.. “Stable Distributions, Futures Prices, and the Measurement of Trading Performance: A Comment.” The Journal of Futures Markets, 6 (Winter 1986), 505–506.CrossRefGoogle Scholar
Dunn & Hargitt Commodity Data Bank. Lafayette, IN, Dunn & Hargitt, Inc.Google Scholar
Epps, T. W., and Epps, M. L.. “The Stochastic Dependence of Security Changes and Transaction Volumes: Implications for the Mixtures-of-Distributions Hypothesis.” Econometrica, 44 (03 1976), 305–321.CrossRefGoogle Scholar
Fama, E. F. “Mandelbrot and the Stable Paretian Hypothesis.” Journal of Business, 36 (10 1963), 420–429.Google Scholar
Fama, E. F. “The Behavior of Stock Market Prices.” Journal of Business, 38 (01 1965), 34–105.Google Scholar
Fama, E. F., and Roll, R.. “Some Properties of Symmetric Stable Distributions.” Journal of the American Statistical Association, 63 (09 1968), 817–836.Google Scholar
Fama, E. F., and Roll, R. “Parameter Estimates for Symmetric Stable Distributions.” Journal of the American Statistical Association, 66 (06 1971), 331–338.Google Scholar
Fielitz, B. D., and Rozelle, J. P.. “Stable Distributions and the Mixtures of Distributions Hypotheses for Common Stock Returns.” Journal of the American Statistical Association, 78 (03 1983), 28–36.Google Scholar
Gordon, J. D. “The Distribution of Daily Changes in Commodity Futures Prices.” Technical Bulletin No. 1702, ERS, USDA (07 1985).Google Scholar
Harris, L. ‘‘Transaction Data Tests of the Mixture of Distributions Hypothesis.’ Journal of Financial and Quantitative Analysis, 22 (06 1987), 127–141.Google Scholar
Hudson, M. A.; Leuthold, R. M.; and Sarassoro, G. F.. “Commodity Futures Price Changes: Recent Evidence for Wheat, Soybeans, and Live Cattle.” Journal of Futures Markets, 7 (06 1987), 287–301.Google Scholar
Hull, J., and White, A.. “The Pricing of Options on Assets with Stochastic Volatilities.” Journal of Finance, 62 (06 1987), 281–300.Google Scholar
Johnson, H., and Shanno, D.. “Option Pricing when Variance is Changing.” Journal of Financial and Quantitative Analysis, 22 (06 1987), 143–151.CrossRefGoogle Scholar
Kenyon, D.; Kling, K.; Jordan, J.; Seale, W.; and McCabe, N.. “Factors Affecting Agricultural Futures Price Variance.” Journal of Futures Markets, 7 (02 1987), 73–91.CrossRefGoogle Scholar
Leitch, R. A., and Paulson, A. S.. “Estimation of Stable Law Parameters: Stock Price Behavior.” Journal of the American Statistical Association, 70 (09 1975), 690–697.Google Scholar
Mandelbrot, B. “The Variation of Certain Speculative Prices.” Journal of Business, 36 (10 1963), 394–419.CrossRefGoogle Scholar
Mann, J. S., and Heifner, R. G.. “The Distribution of Short-Run Commodity Price Movements.” Technical Bulletin No. 1536, ERS, USDA (1976).Google Scholar
Morgan, I. G. “Stock Prices and Heteroskedasticity.” Journal of Business, 49 (10 1976), 496–508.Google Scholar
Officer, R. “The Distribution of Stock Returns.” Journal of the American Statistical Association, 67 (12 1972), 807–812.Google Scholar
Perry, P. R. “More Evidence on the Nature of the Distribution of Security Returns.” Journal of Financial and Quantitative Analysis, 18 (06 1983), 211–221.Google Scholar
So, J. C. “The Sub-Gaussian Distribution of Currency Futures: Stable Paretian or Nonstationary?” Review of Economics and Statistics, 69 (02 1987), 100–107.Google Scholar
Tauchen, G., and Pitts, M.. “The Price Variability-Volume Relationship on Speculative Markets.” Econometrica, 51 (03 1983), 485–505.CrossRefGoogle Scholar
Taylor, S. J. “The Behavior of Futures Prices over Time.” Applied Economics, 17 (08 1985), 713–734.Google Scholar
Teichmoeller, J. “A Note on the Distribution of Stock Price Changes.” Journal of the American Statistical Association, 66 (06 1971), 282–284.Google Scholar
Westerfield, R. “The Distribution of Common Stock Price Changes: An Application of Transactions Time and Subordinated Stochastic Models.” Journal of Financial and Quantitative Analysis, 12 (12 1977), 743–, 765.Google Scholar