Stable distributions, futures prices, and the measurement of trading performance: A reply

✍ Scribed by J. Austin Murphy

• Publisher: John Wiley and Sons
• Year: 1987
• Tongue: English
• Weight: 188 KB
• Volume: 7
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990070110

✦ Synopsis

n a recent note, Doukas and Rahman (1986) cited a well-known statistical fact I that assets with changing variances may exhibit leptokurtosis and non-normality, even when the true distribution is normal (Perry, 1983). Also, citing the Samuelson (1965) hypothesis that futures price volatility may increase as maturity approaches, the authors deduced that the evidence of leptokurtosis discovered in futures prices may be the result of a changing variance as opposed to non-normality.

This reply examines their hypothesis empirically. In order to remove the cited maturity-related distortions, the monthly percentage price changes on a constantmaturity position (the second nearest to maturity) was gathered for each of 15 commodity futures contracts over a 228-month interval (1965-1983). Each of the 15 distributions was tested for normality via D-statistics (Stephens, 1974), and the results are shown in Table I. As can be seen, 13 (87%) of the 15.contracts displayed