Skip to main content
SpringerLink
Log in

Research Habits in Financial Modelling: The Case of Non-normality of Market Returns in the 1970s and the 1980s

  • Chapter
  • First Online:
Methods and Finance

Part of the book series: Studies in Applied Philosophy, Epistemology and Rational Ethics ((SAPERE,volume 34))

Abstract

\(\blacksquare \blacksquare \blacksquare \)

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

Notes

  1. 1.

    See, for example among others, [26,27,28,29,30,31,32,33,34,35].

  2. 2.

    See, in particular, [39, 128–134].

References

  1. O’Neill, O.: A Question of Trust: The BBC Reith Lectures 2002. Cambridge University Press (2002)

    Google Scholar 

  2. Jorion, P.: Risk management lessons from the credit crisis. Eur. Financ. Manage. 15(5), 923–933 (2009). doi:10.1111/j.1468-036X.2009.00507.x

    Article  Google Scholar 

  3. White, L.J.: Markets: the credit rating agencies. J. Econ. Perspect. 24(2), 211–226 (2010)

    Article  Google Scholar 

  4. Pixley, J.: New Perspectives on Emotions in Finance: The Sociology of Confidence. Routledge, Fear and Betrayal (2012)

    Book  Google Scholar 

  5. de Bruin, B.: Ethics and the Global Financial Crisis. Cambridge University Press (2015)

    Google Scholar 

  6. Danielsson, J., Embrechts, P., Goodhart, C., Keating, C., Muennich, F., Renault, O., Shin, H.S.: An academic response to Basel II. Technical Report 130, London School of Economics (2001). Financial markets Group

    Google Scholar 

  7. Markopolos, H.: No One Would Listen: A True Financial Thriller. Wiley (2010)

    Google Scholar 

  8. Benmelech, E., Dlugosz, J.: The alchemy of CDO credit ratings. J. Monetary Econ. 56(5), 617–634 (2009). doi:10.1016/j.jmoneco.2009.04.007

    Article  Google Scholar 

  9. Le Courtois, O., Quittard-Pinon, F.: Risk-neutral and actual default probabilities with an endogenous bankruptcy jump-diffusion model. Asia-Pacific Finan. Markets. 13(1), 11–39 (2007). doi:10.1007/s10690-007-9033-1

    Article  Google Scholar 

  10. Pagano, M., Volpin, P.: Credit ratings failures and policy options. Econ. Policy 25(62), 401–431 (2010). doi:10.1111/j.1468-0327.2010.00245.x

    Article  Google Scholar 

  11. Sheik, A., Qiao, H.: Non-normality of Market Returns. Technical report, J.P. Morgan Asset Management (2009). Strategic Investment Advisory Group

    Google Scholar 

  12. Bachelier, L.: Théorie de la spéculation. Annales scientifiques de l’Ecole Normale Supérieure pp. 21–86 (1900)

    Google Scholar 

  13. Bernstein, P.: Capital Ideas: The Improbable Origins of Modern Wall Street. Wiley (2005)

    Google Scholar 

  14. Dimand, R.W., Veloce, W.: Alfred Cowles and Robert Rhea on the predictability of stock prices. J. Bus. Inquiry 9(1), 56–64 (2010)

    Google Scholar 

  15. Preda, A.: Framing Finance: The Boundaries of Markets and Modern Capitalism. University of Chicago Press (2009)

    Google Scholar 

  16. Rhea, R.: The Dow Theory. Fraser Publishing Library, New York (1932)

    Google Scholar 

  17. Davis, M., Etheridge, A.: Louis Bachelier’s Theory of Speculation: The Origins of Modern Finance. Princeton University Press, Princeton (2006)

    Google Scholar 

  18. Mackenzie, D.: An Engine, Not a Camera: How Financial Models Shape Markets. MIT Press, Cambridge, Mass. (2006). doi:10.1080/15265160902874361

  19. Markowitz, H.: Portfolio selection. J. Financ. 7(1), 77–91 (1952). doi:10.1111/j.1540-6261.1952.tb01525.x

    Google Scholar 

  20. Sharpe, W.F.: Capital asset prices: a theory of market equilibrium under conditions of risk. J. Finan. XIX(3), 425–442 (1964)

    Google Scholar 

  21. Fama, E.: The behavior of stock-market prices. J. Bus. 38(1), 34 (1965). doi:10.1086/294743

    Article  Google Scholar 

  22. Fama, E.: Efficient capital markets: a review. J. Finan. 25(2), 383–417 (1970)

    Article  Google Scholar 

  23. Mehrling, P.: Fischer Black and the Revolutionary Idea of Finance. Wiley, New York (2005)

    Google Scholar 

  24. Cont, R.: Empirical properties of asset returns: stylized facts and statistical issues. Quant. Finan. 1, 223–236 (2001). doi:10.1088/1469-7688/1/2/304

    Article  Google Scholar 

  25. Kendall, M.: The analysis of economic time-series-part I: prices. J. Royal Stat. Soc. Series A (General) 116(1), 11–34 (1953). doi:10.2307/2980947

  26. Bouchaud, J.P., Potters, M.: Theory of Financial Risk and Derivative Pricing: From Statistical Physics to Risk Management. Cambridge University Press, Cambridge (2000)

    Google Scholar 

  27. Boyarchenko, S.I., Levendorskii, S.Z.: Non-Gaussian Merton-Black-Scholes Theory. World Scientific (2002)

    Google Scholar 

  28. Cont, R., Tankov, P.: Financial Modelling with Jump Processes. Chapman and Hall (2004)

    Google Scholar 

  29. Eberlein, E., Keller, U.: Hyperbolic distributions in finance. Bernoulli 1(3), 281–299 (1995). doi:10.2307/3318481

    Article  Google Scholar 

  30. Embrechts, P., Kluppelberg, C., Mikosch, T.: Modelling Extremal Events for Insurance and Finance. Springer (1997)

    Google Scholar 

  31. Jondeau, E., Poon, S.H., Rockinger, M.: Financial Modeling Under Non-Gaussian Distributions. Springer, London (2007). doi:10.1007/978-1-84628-696-4

  32. Kemp, M.: Extreme Events: Robust Portfolio Construction in the Presence of Fat Tails. Wiley Finance (2011)

    Google Scholar 

  33. Kotz, S., Kozubowski, T., Podgorski, K.: The Laplace Distribution and Generalizations. Birkhauser, Basel (2001). doi:10.1007/978-1-4612-0173-1

  34. Rachev, S.T., Mittnik, S.: Stable Paretian Models in Finance. Wiley (2000)

    Google Scholar 

  35. Schoutens, W.: Lévy Processes in Finance: Pricing Financial Derivatives. Wiley Finance (2003)

    Google Scholar 

  36. de Bruin, B.: Reducible and nonsensical uses of game theory. Philos. Soc. Sci. 38, 247–266 (2008). doi:10.1177/0048393108315557

    Article  Google Scholar 

  37. de Bruin, B.: On the Narrow Epistemology of Game-Theoretic Agents. In: Majer, O., Pietarinen, A.V., Tulenheim, T. (eds.) Games: Unifying Logic, Language, and Philosophy, pp. 27–36. Springer, Dordrecht (2009)

    Chapter  Google Scholar 

  38. de Bruin, B.: Overmathematisation in game theory: pitting the Nash Equilibrium Refinement Programme against the Epistemic Programme. Stud. Hist. Philos. Sci. Part A 40(3), 290–300 (2009). doi:10.1016/j.shpsa.2009.06.005

    Article  Google Scholar 

  39. de Bruin, B.: Explaining Games. Springer, Dordrecht (2010). doi:10.1007/978-1-4020-9906-9

  40. Walter, C.: Une histoire du concept d’efficience sur les marchés financiers. Annales. Histoire, Sciences Sociales 51(4), 873–905 (1996). doi:10.3406/ahess.1996.410892

  41. Walter, C.: Aux origines de la mesure de performance des fonds d’investissement. Les travaux d’Alfred Cowles. Histoire & Mesure 14(1), 163–197 (1999). doi:10.3406/hism.1999.1506

  42. Walter, C.: La recherche de lois d’échelles sur les variations boursières. In: P. Abry, P. Goncalvés, J. Lévy Véhel (eds.) Lois d’échelle, fractales et ondelettes, pp. 553–588. Hermès, Paris (2002)

    Google Scholar 

  43. Walter, C.: 1900–2000: un siècle de processus de Lévy en finance. In: Bensimon, G. (ed.) Histoire des représentations du marché, pp. 553–588. Michel Houdiard, Paris (2005)

    Google Scholar 

  44. Walter, C.: Le phénomène leptokurtique sur les marchés financiers. Finance 23(2), 15–68 (2002)

    Google Scholar 

  45. Kuhn, T.S.: The Structure of Scientific Revolutions. The University of Chicago Press, Chicago (1962)

    Google Scholar 

  46. von Neumann, J., Morgenstern, O.: Theory of Games and Economic Behavior. Princeton University Press, Princeton (1944)

    Google Scholar 

  47. Nash, J.: Non-cooperative games. Ann. Math. 54(1), 286–295 (1951). doi:10.2307/1969529

    Article  Google Scholar 

  48. Selten, R.: Reexamination of the perfectness concept for equilibrium points in extensive games. Int. J. Game Theor. 4(1), 25–55 (1975). doi:10.1007/BF01766400

    Article  Google Scholar 

  49. Myerson, R.B.: Refinements of the Nash equilibrium concept. Int. J. Game Theor. 7(2), 73–80 (1978). doi:10.1007/BF01753236

    Article  Google Scholar 

  50. Selten, R.: Spieltheoretische Behandlung eines Oligopolmodells mit Nachfrageträgheid: Teil I: Bestimmung des dynamische Preisgleichgewichts. Zeitschrift für die gesamte Staatswissenschaft 121(2), 301–324 (1965)

    Google Scholar 

  51. Aumann, R.: What is Game Theory Trying to Accomplish? In: Arrow, K., Honkapohja, S. (eds.) Frontiers of Economics, pp. 28–76. Blackwell, Oxford (1987)

    Google Scholar 

  52. Camerer, C.F.: Behavioral Game Theory: Experiments in Strategic Interaction. Princeton University Press, Princeton (2003)

    Google Scholar 

  53. Samuelson, L.: Evolutionary Games and Equilibrium Selection. MIT Press, Cambridge, Mass (1997)

    Google Scholar 

  54. Goeree, J.K., Holt, C.A.: Stochastic game theory: for playing games, not just for doing theory. Proc. Nat. Acad. Sci. U.S.A. 96(19), 10564–10567 (1999). doi:10.1073/pnas.96.19.10564

    Article  Google Scholar 

  55. Heifetz, A.: Game Theory Interactive Strategies in Economics and Management. Cambridge University Press, Cambridge (2012)

    Book  Google Scholar 

  56. Tadelis, S.: Game Theory: An Introduction. Princeton University Press, Princeton (2013)

    Google Scholar 

  57. Mill, J.S.: On the definition of political economy; and on the method of philosophical investigation in that science. London Westminster Rev. 26, 1–29 (1836)

    Google Scholar 

  58. Myerson, R.B.: Game theory analysis of conflict. Cambridge, Mass (1991)

    Google Scholar 

  59. Simon, H.: Reason in Human Affairs. Stanford University Press, Stanford (1983)

    Google Scholar 

  60. Friedman, M.: The Methodology of Positive Economics. In: Essays in Positive Economics, pp. 3–43. Princeton University Press, Princeton (1953)

    Google Scholar 

  61. Osborne, M.: Brownian motion in the stock market. Operations research 07(March-April), 145–173 (1959). doi:10.1287/opre.7.2.145

  62. Jorion, P.: Value at Risk: The New Benchmark for Managing Financial Risk. McGraw-Hill, New York (2007)

    Google Scholar 

  63. Lo, A.W., MacKinlay, A.C.: Stock market prices do not follow random walks: evidence from a simple specification test. Rev. Financ. Stud. 1(1), 41–66 (1988). doi:10.1093/rfs/1.1.41

    Article  Google Scholar 

  64. Daníelsson, J., Zigrand, J.P.: On time-scaling of risk and the square-root-of-time rule. J. Bank. Finan. 30(10), 2701–2713 (2006). doi:10.1016/j.jbankfin.2005.10.002

    Article  Google Scholar 

  65. Goodhart, C.: The basel committee on banking supervision. A History of the Early Years 1974–1997. Cambridge University Press, Cambridge (2011)

    Google Scholar 

  66. Merton, R.C.: Option pricing when underlying stock returns are discontinuous. J. Finan. Econ. 3(1–2), 125–144 (1976). doi:10.1016/0304-405X(76)90022-2

    Article  Google Scholar 

  67. Cox, J.C., Ross, S.A.: The valuation of options for alternative stochastic processes. J. Finan. Econ. 3(1–2), 145–166 (1976). doi:10.1016/0304-405X(76)90023-4

  68. Ball, C.A., Torous, W.N.: On jumps in common stock prices and their impact on call option pricing. J. Finan. 40(1), 155–173 (1985). doi:10.2307/2328053

    Article  Google Scholar 

  69. Carr, P., Geman, H., Madan, D.B., Yor, M.: The fine structure of asset returns: an empirical investigation. J. Bus. 75(2), 305–332 (2002). doi:10.1086/338705

    Article  Google Scholar 

  70. Larson, A.B.: Measurement of a random process in futures prices. Stanford university. Food Res. Inst. Stud. 1, 313–324 (1960)

    Google Scholar 

  71. Houthakker, H.S.: Systematic and random elements in short-term price movements. Am. Econ. Rev. 51(2), 164–172 (1961)

    Google Scholar 

  72. Alexander, S.: Price movements in speculative markets: trends or random walks. Ind. Manag. Rev. 2, 7–26 (1961)

    Google Scholar 

  73. Roberts, H.V.: Stock-market "patterns" and financial analysis: methodological suggestions. J Financ. 14(1), 1–10 (1959). doi:10.1111/j.1540-6261.1959.tb00481.x

    Google Scholar 

  74. Cootner, P.H.: Common elements in futures markets for commodities and bonds. Am. Econ. Rev. 51(2) (1961)

    Google Scholar 

  75. Mandelbrot, B.: Sur certains prix spéculatifs : faits empiriques et modèle basé sur les processus stables additifs non gaussiens de Paul Lévy. Comptes rendus hebdomadaires des séances de l’Académie des sciences 254(3), 3968–3970 (1962). ark:/12148/bpt6k4002d

    Google Scholar 

  76. Mandelbrot, B.: The variation of certain speculative prices. J. Bus. 36(4), 394–419 (1963)

    Article  Google Scholar 

  77. Mandelbrot, B.: Nouveaux modèles de la variation des prix (cycles lents et changements instantanés). Cahiers du séminaire d’économétrie 9, 53–66 (1966)

    Article  Google Scholar 

  78. Mandelbrot, B.: Formes nouvelles du hasard dans les sciences. Économie appliquée 26, 307–319 (1973)

    Google Scholar 

  79. Mandelbrot, B.: Le problème de la réalité des cycles lents et le syndrome de Joseph. Économie appliquée 26, 349–365 (1973)

    Google Scholar 

  80. Mandelbrot, B.: Le syndrome de la variance infinie et ses rapports avec la discontinuité des prix. Économie appliquée 26, 321–348 (1973)

    Google Scholar 

  81. Mandelbrot, B.: Fractals and scaling in finance. Discontinuity, Concentration, Risk. Selecta Volume E. Springer, New York (1997). doi:10.1007/978-1-4757-2763-0

  82. Press, S.J.: A compound events model for security prices. J. Bus. 40(3), 317–335 (1967)

    Article  Google Scholar 

  83. Engle, R.F.: Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50(4), 987–1007 (1982)

    Article  Google Scholar 

  84. Engle, R.F.: Estimates of the variance of U.S. inflation based upon the ARCH model. J. Money Credit Bank. 15(3), 286–301 (1983). doi:10.2307/1992480

    Article  Google Scholar 

  85. Bollerslev, T.: Generalized autoregressive conditional heteroskedasticity. J. Econometrics 31(3), 307–327 (1986). doi:10.1016/0304-4076(86)90063-1

    Article  Google Scholar 

  86. Elie, L., El Karoui, N., Jeantheau, T., Jeanblanc, M.: Les modèles ARCH sur les cours de change. In: Proceedings of the 3rd AFIR Colloquium, pp. 91–101. Istituto Italiano degli Attuari, Italy (1993)

    Google Scholar 

  87. Gouriéroux, C., Fol, G.L.: Volatilités et mesures de risques. Journal de la Société de statistique de Paris 138(4), 7–32 (1997)

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculties of Philosophy, and Economics and Business, University of Groningen, Nettelbosje 2, 9747, Groningen, AE, The Netherlands

    Boudewijn de Bruin

  2. Fondation Maison des Sciences de L’homme, Ethics and Finance Chair, 190 Avenue de France, 75013, Paris, France

    Christian Walter

Authors
  1. Boudewijn de Bruin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Christian Walter
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christian Walter .

Editor information

Editors and Affiliations

  1. Philosophy Department, Sapienza University of Rome,Dipartimento di Filosofia Via Carlo Fea 2, Rome, Italy

    Emiliano Ippoliti

  2. National School of Development, Peking University, Beijing, China

    Ping Chen

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer International Publishing AG

About this chapter

Cite this chapter

de Bruin, B., Walter, C. (2017). Research Habits in Financial Modelling: The Case of Non-normality of Market Returns in the 1970s and the 1980s. In: Ippoliti, E., Chen, P. (eds) Methods and Finance. Studies in Applied Philosophy, Epistemology and Rational Ethics, vol 34. Springer, Cham. https://doi.org/10.1007/978-3-319-49872-0_5

Download citation

Publish with us

Policies and ethics

Search

Navigation