“The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture‐of‐Distributions Hypothesis.”
Author: ROLL, RICHARD
Source: The Journal of Finance, Volume 43, Number 3, 1 July 1988 , pp. 541-566(26)
Even with hindsight, the ability to explain stock price changes is modest. R 2s were calculated for the returns of large stocks as explained by systematic economic influences, by the returns on other stocks in the same industry, and by public firm‐specific news events. The average adjusted R 2 is only about .35 with monthly data and .20 with daily data. There is little relation between explanatory power and either the firm's size or its industry. There is little improvement in R 2 from eliminating all dates surrounding news reports in the financial press. However, the sample kurtosis is quite different when such news events are eliminated, thereby revealing a mixture of return distributions. Non‐news dates also indicate the presence of a distributional mixture, perhaps due to traders acting on private information.
Document Type: Research Article
Publication date: 1 July 1988