Skewed Normal Variance-Mean Models for Asset Pricing and the Method of Moments |
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Authors: | Annelies Tjetjep Eugene Seneta |
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Institution: | School of Mathematics and Statistics F07, University of Sydney, NSW 2006, Australia E-mail: |
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Abstract: | Financial returns (log-increments) data, Y t , t = 1,2,…, are treated as a stationary process, with the common distribution at each time point being not necessarily symmetric. We consider as possible models for the common distribution four instances of the General Normal Variance-Mean Model (GNVM), which is described by Y | V ~ N ( a ( b + V ), c 2V + d2 ) where V is a nonnegative random variable and a, b, c and d are constants. When V is Gamma distributed and d = 0, Y has the skewed Variance-Gamma distribution (VG). When V follows a Half Normal distribution and c = 0, Y has the well-known Skew Normal (SN) distribution. We also consider two cases where V is Exponentially distributed. Bounds for skewness and kurtosis in each case are found in terms of the moments of the V . These are useful in determining whether the Method of Moments for a given model is feasible. The problem of overdetermination of parameters via estimating equations is examined. 5 data sets of actual returns data, chosen because of their earlier occurrence in the literature, are analysed using each of the 4 models. |
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Keywords: | Normal Variance–Mean distribution Variance-Gamma distribution Skewed Normal Laplace distribution Exponential distribution Method of Moments Skewness Kurtosis |
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