Abstract
This article applies a newly developed statistical technique to time series of daily rates of return of 15 common stocks. The technique involves estimating the bispectrum of the observed time series. The bispectrum is defined as the double Fourier transform of the third-order cumulant function. If the process generating rates of return is linear with independent innovations, then the skewness of the bispectrum will be constant. The article describes a test that can detect nonconstant skewness in the bispectrum. Hence if the test rejects constant skewness, a nonlinear process is implied. As a consequence, the test can distinguish between white noise and purely random noise. The results suggest that daily stock returns are generated by a nonlinear process.
Keywords
BispectrumSkewnessEconometricsWhite noiseNonlinear systemMathematicsBicoherenceKurtosisSeries (stratigraphy)StatisticsStatistical hypothesis testingSpectral densityPhysics
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Publication Info
- Year
- 1985
- Type
- article
- Volume
- 3
- Issue
- 1
- Pages
- 69-77
- Citations
- 260
- Access
- Closed
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Cite This
Melvin J. Hinich,
Douglas M. Patterson
(1985).
Evidence of Nonlinearity in Daily Stock Returns.
Journal of Business and Economic Statistics
, 3
(1)
, 69-77.
https://doi.org/10.1080/07350015.1985.10509428
Identifiers
- DOI
- 10.1080/07350015.1985.10509428