The Feller diffusion, filter rules and abnormal stock returns

Docherty, Paul, Dong, Yizhe, Song, Xiaojing and Tippett, Mark (2018) The Feller diffusion, filter rules and abnormal stock returns. The European Journal of Finance, 24 (5). pp. 426-438. ISSN 1351-847X

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Abstract

We determine the conditional expected logarithmic (that is, continuously compounded) return on a stock whose price evolves in terms of the Feller diffusion and then use it to demonstrate how one must know the exact probability density that describes a stock’s return before one can determine the correct way to calculate the abnormal returns that accrue on the stock. We show in particular that misspecification of the stochastic process which generates a stock’s price will lead to systematic biases in the abnormal returns calculated on the stock. We examine the implications this has for the proper conduct of empirical work and for the evaluation of stock and portfolio performance.

Item Type:	Article
Uncontrolled Keywords:	feller diffusion,fokker-planck equation,geometric brownian motion,logarithmic return
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Accounting, Finance and Governance (former - to 2017)
Depositing User:	Pure Connector
Date Deposited:	31 Mar 2017 00:41
Last Modified:	22 Oct 2022 02:30
URI:	https://ueaeprints.uea.ac.uk/id/eprint/63146
DOI:	10.1080/1351847X.2017.1309328

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