Microsoft PowerPoint - PoF.ppt

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Empirical features of returns 22

ƒ

Simple and log returns cannot be distinguished in such graphs
ƒ

Erratic (“

white noise

”), strongly oscillating behavior of returns around the

more or less constant mean (“

stationary process

” i.p. “

mean

reverting

”)

ƒ

Variance / volatility (sta

ndard deviation) is no

t constant over time

(“

heteroskedasticity

”) i.p. we have

periods of different length with

approximately the same degree of variation (

“volatility clustering

”)

Single-period random cash flows: Stocks

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