Empirical Analyses of Industry Stock Index Return Distributions
for the Taiwan Stock Exchange

Svetlozar T. Rachev

Stoyan V. Stoyanov

Chufang Wu


Frank J. Fabozzi

We study the daily return distributions for 22 industry stock indexes on the Tai-wan Stock Exchange under the unconditional homoskedastic independent, identically distributed and the conditional heteroskedastic GARCH models. Two distribution hypotheses are tested: the Gaussian and the stable Paretian distributions. The performance of the stable Paretian distribution is better than that of the Gaussian distribution. A back-testing example is provided to give evidence on the superiority of the stable ARMA-GARCH to the normal ARMA-GARCH.

Key Words: Stable distributions; ARMA-GARCH; Heavy tails; Volatility clustering; Value at risk.
JEL Classification Numbers: C13, G10.