Testing distributional models for the Irish equity market

Abstract

This study outlines distributional properties and tests the applicability of different models for the ISEQ index and its major constituents. A Stability under Additions procedure is applied to raw, filtered and rescaled returns. The filtering process uses GARCH(1,1) and GARCH-M(1,1) specifications, removing the influence of temporal anomalies and non-synchronous trading effects. Rescaling involves the standardising of returns using the time varying models estimates of conditional variance. Results support the ordinary stable and mixtures of stables distributions. The lack of normality is affected by first and second moment dependence.