Common Stock Return Distributions during Homogeneous Activity Periods

Abstract

According to a now classic study of stock market price behavior by Fama [6], the empirical distributions of daily log price relatives are usually stable Paretian, non-Gaussian. However, there appears to have been substantial reluctance to accept Fama's [6] research results as indicative of a fundamental return generating process which is stable Paretian, non-Gaussian. Blattberg and Gonedes [1], Clarke [4], Officer [18], Praetz [19], and Press [20] have each in their own way questioned the Fama [6] results. Most recently Hsu, Miller, and Wichern (HMW) [13] have suggested that in periods of homogeneous activity for a firm the empirical distribution of rates of return on a common share may be Gaussian, in other words, that the fundamental return generating process may be normal.