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An examination of the distribution of futures price changes

✍ Scribed by Billy P. Helms; Terrence F. Martell

Publisher: John Wiley and Sons
Year: 1985
Tongue: English
Weight: 604 KB
Volume: 5
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.3990050209

No coin nor oath required. For personal study only.

✦ Synopsis

n the finance literature considerable attention has been given to the distribution I of stock and commodity price changes. Contributing to this body of literature, this study examines the distribution of successive intraday price changes in various financial and nonfinancial futures contracts. Two different tests are used to ascertain if these price changes are normally distributed. We further tested to see if the distribution more closely conformed to the form of some other member of the class of stable distributions.

The first section of this article reviews some of the more important empirical contributions in this area. Section I1 discusses the unique nature of our data. The third section presents and interprets our results, while Section IV summarizes our findings.

I. REVIEW OF LITERATURE

The majority of the research on the distributions of security prices has examined the distributions of stock prices or returns. Osborne (1959) showed that stock price changes fit a lognormal distribution better than a normal distribution. Fama (1965) and Mandelbrot (1963) called attention to the fact that there was substantial deviation from normality in the distribution of the log of stock price changes. This observation led to an examination of more general distributions. The appropriateness of a stable Paretian distribution has been examined by Mandelbrot and Taylor (1967) and Fama and Roll (1968, 1971). Papers by Fielitz and Smith (1972) and Boness, Chen, and Jatusipitak (1974) argue that the moment-generating function may not be a stable

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