Fat tails in financial return distributions revisited: evidence from the Korean stock market

Eom, Cheoljun, Kaizoji, Taisei and Scalas, Enrico (2019) Fat tails in financial return distributions revisited: evidence from the Korean stock market. Physica A Statistical Mechanics and its Applications, 526. p. 121055. ISSN 0378-4371

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Abstract

This study empirically re-examines fat tails in stock return distributions by applying statistical methods to an extensive dataset taken from the Korean stock market. The tails of the return distributions are shown to be much fatter in recent periods than in past periods and much fatter for small-capitalization stocks than for large-capitalization stocks. After controlling for the 1997 Korean foreign currency crisis and using the GARCH filter models to control for volatility clustering in the returns, the fat tails in the distribution of residuals are found to persist. We show that market crashes and volatility clustering may not sufficiently account for the existence of fat tails in return distributions. These findings are robust regardless of period or type of stock group.

Item Type: Article
Keywords: Existence of fat tails, Statistical probability, Market crash, Volatility clustering, GARCH filter models
Schools and Departments: School of Mathematical and Physical Sciences > Mathematics
Research Centres and Groups: Probability and Statistics Research Group
Subjects: H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects
Q Science > QA Mathematics > QA0273 Probabilities. Mathematical statistics
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Depositing User: Enrico Scalas
Date Deposited: 10 Apr 2019 11:54
Last Modified: 01 Jul 2019 15:45
URI: http://sro.sussex.ac.uk/id/eprint/83114

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