NONLINEAR DYNAMICS AND THE DISTRIBUTION OF DAILY STOCK INDEX RETURNS

B. Wade Brorsen, Seung Ryong Yang

Research output: Contribution to journalArticle

16 Citations (Scopus)

Abstract

Three alternative models of daily stock index returns are considered: (1) a diffusion‐jump process; (2) an extended generalized autoregressive conditional heteroskedasticity (GARCH) process; and (3) a combination of the GARCH and jump processes. Non‐nested tests between the diffusion‐jump process and a GARCH(1.1) process with t‐distributed errors reject the diffusion‐jump process, but do not always reject the GARCH process. Kolmogorov‐Smirnov tests of fit, however, reject the GARCH(1,1)‐t process for all cases. Nonlinear dependence is not removed for the value‐weighted index and the S&P 500 stock index; therefore, deterministic chaos cannot be dismissed.

Original languageEnglish
Pages (from-to)187-203
Number of pages17
JournalJournal of Financial Research
Volume17
Issue number2
DOIs
Publication statusPublished - 1994
Externally publishedYes

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Nonlinear dynamics
Stock index
Autoregressive conditional heteroskedasticity
Deterministic chaos
Jump process
Alternative models
Non-nested tests
Nonlinear dependence

ASJC Scopus subject areas

  • Accounting
  • Finance

Cite this

NONLINEAR DYNAMICS AND THE DISTRIBUTION OF DAILY STOCK INDEX RETURNS. / Brorsen, B. Wade; Yang, Seung Ryong.

In: Journal of Financial Research, Vol. 17, No. 2, 1994, p. 187-203.

Research output: Contribution to journalArticle

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