Modelling Ghana Stock Exchange Indices And Exchange Rates With Stable Distributions

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.

Overall Rating

0

5 Star
(0)
4 Star
(0)
3 Star
(0)
2 Star
(0)
1 Star
(0)
APA

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

MLA 8th

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.

MLA7

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 >.

Chicago

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