DISTRIBUTION NATURE OF RETURN FROM NEPALESE STOCK MARKET
Subject Areas : Economics
Rashesh Vaidya
1
*
,
Jeetendra Dangol
2
,
Dilliraj Sharma
3
1 - Tribhuvan University
2 - Tribhuvan University
3 - Tribhuvan University
Keywords: distribution nature of return, stock market, efficient market, Nepalese,
Abstract :
The fitting of the return on normal distribution could lead to predicting the market trend with the help of only two parameters, i.e., mean and standard deviation for the stock or market return. The return from the major indices and sub-indices of different sectors listed in Nepalese secondary market, Nepal Stock Exchange Limited (NEPSE) were fitted on the probability distribution function (pdf) to determine the best-fitted distribution for the returns. The paper used the return data from the Nepalese stock market indices to fit the distribution nature of the return. The Kolmogorov-Smirnov Test (K-S Test) has been used in a work to objectively confirm the statistical fit between an observed sample and a theoretical probability distribution. Concurrently, the study employed the Anderson-Darling Test (A2 Test) to determine if a particular data sample is representative of a certain probability distribution. The paper found only the daily return from the Nepalese stock market fit for normal distribution while most of the sector-wise returns best fit the distribution related to extreme value theory.
Afuecheta, E. Semeyutin, A., Chan, S., Nadarajah, S. & Ruiz, D.A.P. (2020). Compound distribution for financial returns. PLOS ONE, 15(10), e0239652. https://doi.org/ 10.1371/journal.pone.0239652
Aparicio, F.M. & Estrada, J. (2001). Empirical distributions of stock returns: European securities markets, 1990-95. The European Journal of Finance, 7(1). 1-21. https://doi.org/ 10.1080/13518470121786
Badrinath, S.G., & Chatterjee, S. (1988). On measuring skewness and elongation in common stock return distribution: The case of the market index. The Journal of Business, 61(4), 451-472. https://doi.org/10.1086/296443
Bodie, Z., Kane, A. & Marcus, A.J. (2018). Investments. McGraw-Hill Education.
Borowski, K. (2018). Testing 65 equity indexes for normal distribution of returns. Journal of Economics and Management, 34(4), 5-38. https://doi.org/10.22367/jem.2018.34.01
Choi, S-Y., & Yoon, J-H. (2020). Modeling and risk analysis using parametric distributions with an application in equity-linked securities. Mathematical Problems in Engineering, 2020(9863065), 1-20. https://doi.org/10.1155/2020/9763065
Corlu, C.G., Meterelliyoz, M., & Tiniç, M. (2016). Empirical distributions of daily equity index returns: A comparison. Expert Systems With Applications, 54(15), 170-192. https://doi.org/10.1016/j.eswa.2015.12.048
Drăgulescu, A.A. & Yakovenko, V.M. (2002). Probability distribution of returns in the Heston model with stochastic volatility. Quantitative Finance, 2(6), 443-453. https://doi.org/10.1080/14697688.2002.0000011
Eberlein, E. & Keller, U. (1995). Hyperbolic distributions in finance. Bernoulli, 1(3), 281-299. https://doi.org/10.0.2307/3318481
Eberlein, C.V., Morra, M.J., Guttieri, M.J., Brown, P.D., & Brown, J. (1998). Glucosinolate production by five field-grown
Brassica napus cultivars used as green manures. Weed Technology, 12(4), 712-718. https://doi.org/10.1017/S0890037X00044596
Fama, E.F. (1965). The behavior of stock-market prices. Journal of Finance, 38(1), 34-105. https://doi.org/10.1086/294743
Gauss, J.C.F. (1809). Theoria motus corporum coelestium in sectionibus conicis solem ambientium [Theory of the motion of the heavenly bodies moving about the sun in conic sections]. Friedrich Perthes and I.H. Besser.
Gettinby, G.D., Sinclair, C.D., Power, D.M., & Brown, R.A. (2006). An analysis of the distribution of extremes in indices of share returns in the US, UK and Japan from 1963 to 200. International Journal of Finance & Economics, 11(2), 97-113. https://doi.org/10.1002/ijfe.280
Gray, B., & French, D. (1990). Empirical comparisons of distributional models for stock index returns. Journal of Business, Finance & Accounting, 17(3), 451-459. https://doi.org/ 10.1111/j.1468-5957.1990.tb01197.x
Gujarati, D.N., Porter, D.C., & Gunasekar, S. (2014). Basic econometrics. McGraw Hill Education (India) Private Limited.
Hagerman, R.L. (1978). More evidence on the distribution of security returns. The Journal of Finance, 33(4). 1213-1221. https://doi.org/10.1111/j.1540-6261.1978.tb02058.x
Harckbart, G. (2019). Laplace versus the normal distribution for daily stock market returns. SSRN Electronic Journal, 1-7. http://dx.doi.org/10.2139/ssrn.3479681
Kumar, R., & Dhankar, R.S. (2011). Distribution of risk and return: A test of normality in Indian stock market. South Asian Journal of Management:SAJM, 18(1),109-118.
Laplace, P-S. (1812). The’eorie Analytique des Probabilit’es [Analytical theory of probabilities]. Ve. Courcier.
Liu, C. & Chang, C. (2021). Combination of transition probability distribution and stable Lorentz distribution in stock markets. Physic A: Statistical Mechanics and its Applications, 565, 12554. https://doi.org/10.1016/j.physa.2020.125554
Malevergne, Y., Pisarenko, V., & Sornette, D. (2006). On the power of Generalized Extreme Value (GEV) and Generalized Pareto Distribution (GPD) estimators for empirical distributions of stock returns. Applied Financial Economics, 16(3), 271-289. https://doi.org/10.1080/09603100500391008
Mondal, P., Puthoo, S., Venugopal, A., Maniyara, R., Charul, A. & Parashar, N. (2010). Understanding distribution pattern of banking sector stock prices in Indian stock market. Asia Pacific Journal of Management Research and Innovation, 6(3), 88-98. https://doi.org/10.1177/097324701000600307
Naiman, E.L., & Khokhlov, V.Y. (2012). The distribution of daily stock returns. Finance of Ukraine, 2, 70-79. http://finukr.org.ua/docs/FU_12_02_070_ uk. pdf
Odabasi, A., Aksu, C., & Akgiray, V. (2004). The statistical evolution of prices on the Istanbul stock exchange. The European Journal of Finance, 10(6), 510-525. https://doi.org/ 10.1080/1351847032000166931
Odhiambo, J., Weke, P., & Wendo, J. (2020). Modeling of returns of Nairobi securities exchange 20 share index using log-normal distribution. Research Journal of Finance and Accounting, 11(8), 77-82. https://doi.org/10.7176/RJFA/11-8-08
Peirό, A. (1994). The distribution of stock returns: International evidence. Applied Financial Economics, 4(6), 431-439. https://doi.org/10.1080/758518675
Pekár, J. & Pčolár, M. (2022). Empirical distribution of daily stock returns of selected developing and emerging markets with application to financial risk management. Central European Journal of Operations Research, 30 (2), 699–731. https://doi.org/10.1007/ s10100-021-00771-4
Praetz, P. & Wilson, E.J.G. (1978). The distribution of stock market returns: 1958-1973. Australian Journal of Management, 3(1), 79-90. https://doi.org/10.1177/ 031289627800300106
Pizzutilo, F. (2013). The distribution of the returns of Japanese stocks and portfolios. Asian Economic and Financial Review, 3(9), 1249-1259.
Toth, D. & Jones, B. (2019). Against the norm: Modeling daily stock returns with the Laplace distribution. https://arxiv.org/abs/1906.10325
Rayleigh, L. (1880).On the resultant of a large number of vibrations of the same pitch and of arbitrary phase. The London, Edinburgh, and Dublin Philosophical Magazine and Journal of Science, 10(60), 73-78. https://doi.org/10.1080/14786448008626893