Modelling Ghana Stock Exchange Index with Stable Distributions

Abstract

Major concepts in theoretical and empirical finance developed over the years rest upon the assumption that the return or price distribution for financial data follows a normal distribution, but this assumption is not justified by empirical data. This paper shows that the return distribution of some Ghanaian financial data exhibits excess kurtosis. The paper shows that of the three known methods of estimating the parameters of alpha-stable distributions: Maximum Likelihood estimation, Empirical Characteristic function and Sample Quantile methods, the first method performed better than the other two. The weekly return financial data (GSE all-shares index) is modelled with stable distribution.