We all know that stock market returns are not normally distributed. Instead, we think of them as having fat tails (i.e. extreme events happen more frequently than expected). But if you look at the distribution of stock market returns over different time frames then you will find that returns aren’t even monomodal, i.e. they don’t just have one peak in the middle of the distribution as predicted by the normal distribution. Instead, it is easy to identify different market regimes in the return distribution.
The distribution of stock market returns
The distribution of stock market returns
The distribution of stock market returns
We all know that stock market returns are not normally distributed. Instead, we think of them as having fat tails (i.e. extreme events happen more frequently than expected). But if you look at the distribution of stock market returns over different time frames then you will find that returns aren’t even monomodal, i.e. they don’t just have one peak in the middle of the distribution as predicted by the normal distribution. Instead, it is easy to identify different market regimes in the return distribution.