Jan

6

The normal distribution is a poor fit to the daily percentage returns of the S&P 500 from 1950-2005. The lognormal distribution is a poor fit to single period continuously compounded returns for the S&P 500, which means that future prices are not lognormally distributed. However, sums of continuously compounded returns are much more normal in their distribution, as would be expected based on the central limit theorem. A t-distribution with location/scale parameters is shown to be an excellent fit to the daily percentage returns of the S&P 500 Index. [Read more here]


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