Selecting between student and normal mixture distributions

It is widely recognized that financial data distributions have heavier tails than normal distributions. These tails can be modeled as Student distributions and normal mixture distributions. However, selecting between these distributions has not been previously studied. To this end, this study propos...

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Bibliographic Details
Published in:Applied economics letters 2020-04, Vol.27 (7), p.549-554
Main Author: Fukuda, Kosei
Format: Article
Language:English
Subjects:
Economic analysis
Economic theory
Economics
Efficacy
hypothesis test
Information criterion
normal mixture distribution
Probability distribution
Rates of return
Securities markets
Simulation
Student distribution
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Summary:It is widely recognized that financial data distributions have heavier tails than normal distributions. These tails can be modeled as Student distributions and normal mixture distributions. However, selecting between these distributions has not been previously studied. To this end, this study proposes an information-criterion approach. The efficacy of the proposed method for selecting the number of mixture components is examined via simulation studies that compare the conventional hypothesis test. Empirical results using Japanese stock returns data are also provided.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2019.1640855