A study of distribution of stock returns : information technology companies listed in the Singapore stock market.
Chan, Jenny Jen-Yi.
Chong, Lip Khen.
Koh, Teresa Yee Peng.
Date of Issue1996
College of Business (Nanyang Business School)
The normality distribution of stock returns is widely assumed in many financial models, but recent studies have questioned its validity. The IT industry is one of the fastest-growing industry in Singapore and the role IT plays in today’s world is critically important. Therefore, for this study, 10 public listed companies in the SES are chosen to test the validity of the normality assumption of stock returns using the Kolmogorov-Smirnov test, skewness, kurtosis and Jarque-Bera test. To evaluate the validity of the random walk hypothesis in this market in the SES, the daily excess returns are also tested under the Runs test. The results show that excess stock returns of IT companies listed in the SES are non- normal and their price movements are largely random. Since most of the IT companies are relatively young, they are very growth-oriented and this could possibly contributes to the rejection of the normality assumption. Relating it to our study on normality, we can conclude that stock prices which are random do not necessary have a normal return distribution In conclusion, although the non-normality distribution of stock returns have been proven in many studies and various alternative models have been discovered, the fundamentality of the normality assumption in many financial models will not be easily changed over a short period.
Final Year Project (FYP)
Nanyang Technological University