ABSTRACT
Most of the concepts in theoretical and empirical finance that have been developed over
the last 50 years rest upon the assumption that the return or price distribution for financial
data follows a normal distribution. But this assumption is not justified by empirical data.
Rather, the empirical observations (financial returns) exhibit excess kurtosis, more
colloquially known as fat tails or heavy tails. This research first described the stable
distribution family - stable, Levy stable, Cauchy and Gaussian or Normal distributions.
The study presented three methods of estimating parameters of stable distributions,
namely Maximum Likelihood estimation, Empirical Characteristic function and Sample
Quantile methods, and goodness of fit tests- K-S and Chi-square, were used to
quantitatively assess the quality performance of their respective estimates. A sample of
weekly financial data (GSE All-Shares index, USD/GHC, GBP/GHC and EUR/GHC
exchange rates) covering the period of 02/01/2000 − 31/12/2011 was analysed, and fitted
to stable,Cauchy and Normal distributions. Diagnostic tests such as P-P and Q-Q plots
and goodness of fit tests (K-S, Chi-square, Anderson-Darling and Shapiro-Wilk) were
graphically and quantitatively used to assess fitness to the returns of the data respectively.
The study concludes that the weekly return distributions of Ghana financial data are heavy
tailed and asymmetry and the maximum likelihood estimation method produce the most
accurate and efficient estimates for the stable fit to the data. The weekly financial data
considered were modelled with stable distribution and recommends that for efficient
risk and assets returns management, analysts should explore and discover actual return
distributions of financial data and not desist from speculative assumptions.
KALLAH-DAGADU, G (2021). Modelling Ghana Stock Exchange Indices And Exchange Rates With Stable Distributions. Afribary. Retrieved from https://tracking.afribary.com/works/modelling-ghana-stock-exchange-indices-and-exchange-rates-with-stable-distributions
KALLAH-DAGADU, GABRIEL "Modelling Ghana Stock Exchange Indices And Exchange Rates With Stable Distributions" Afribary. Afribary, 18 Apr. 2021, https://tracking.afribary.com/works/modelling-ghana-stock-exchange-indices-and-exchange-rates-with-stable-distributions. Accessed 23 Nov. 2024.
KALLAH-DAGADU, GABRIEL . "Modelling Ghana Stock Exchange Indices And Exchange Rates With Stable Distributions". Afribary, Afribary, 18 Apr. 2021. Web. 23 Nov. 2024. < https://tracking.afribary.com/works/modelling-ghana-stock-exchange-indices-and-exchange-rates-with-stable-distributions >.
KALLAH-DAGADU, GABRIEL . "Modelling Ghana Stock Exchange Indices And Exchange Rates With Stable Distributions" Afribary (2021). Accessed November 23, 2024. https://tracking.afribary.com/works/modelling-ghana-stock-exchange-indices-and-exchange-rates-with-stable-distributions