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No. 77. THE FATNESS IN EQUITY RETURNS. THE CASE OF ATHENS STOCK EXCHANGE

Published in DISCUSSION PAPERS

I.A. Venetis, E. Emmanuilidi. 2005.

 

The standard Hill and the modified Hill estimator of Huisman et al., (2001) are applied to a large number of individual daily stock returns from the Athens Stock Exchange for the period 1993-2003. We find that the Hill estimator significantly overestimates risk in both tails. In addition, recently constructed tests for structural change are applied. The test results provide strong evidence of time variation in the tail index. The tests are able to propose breakdates that appeared to be clustered shortly after a particular historical period of Athens Stock Exchange, namely the surge of stock prices during 1998-1999. The direction of change is “fat to thin to fat tails” pointing to a significant flattening in the return distributions during the aforementioned period. Such flattening is consistent with noise trading. The fact that small capitalization firms appeared to be more susceptible to such breaks only reinforced the noise trading hypothesis.

 

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