MORE EVIDENCE ON THE DISTRIBUTION OF SECURITY RETURNS

One of the key assumptions of a capital asset pricing model is that security returns follow a stable symmetric distribution. Serious examination of this assumption has been undertaken. A study was made which indicates that AMEX and NYSE securities have approximately the same average characteristic exponents. When measured over sub-periods, these average exponents are stationary. This is not true of individual security characteristic exponents which bear a marked tendency to regress to mean estimate. This fact suggests that all securities have the same characteristic exponent and that any observed differences result from measurement error. The average characteristic exponents of temporally summed returns rise dramatically as the sum increases. This condition is not consistent with the stable symmetric hypothesis and indicates that stable symmetric distribution is not a reasonable description of security returns distribution.