An Empirical Test of Stable Distribution Characteristics of Chinese Stock Returns

The conventional assumption of stock returns is that stock returns obey normal distribution or logarithmic normal distribution. However, empirical distributions of stock returns possesses characteristics of steep peak and thick tail, so it is necessary to find more appropriate probability distribution to describe stock returns. In this paper, we use stable distribution to fit distributions of China's stock returns and find goodness-of-fit is very good. Moreover, 0 of tail indexes are between 0 and 2, which demonstrates Chinese stock returns have obvious property of heavy-tailed distribution.