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A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices

Peter K. Clark
Econometrica
Vol. 41, No. 1 (Jan., 1973), pp. 135-155
Published by: Econometric Society
DOI: 10.2307/1913889
Stable URL: http://www.jstor.org/stable/1913889
Page Count: 21
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A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices
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Abstract

S. Bochner's concept of a subordinate stochastic process is proposed as a model for speculative price series. A general class of finite-variance distributions for price changes is described, and a member of this class, the lognormal-normal, is tested against previously proposed distributions for speculative price differences. It is shown with both discrete Bayes' tests and Kolmogorov-Smirnov tests that finite-variance distributions subordinate to the normal fit cotton futures price data better than members of the stable family.

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