Predicting Stock Market Returns—Lose the Normal and Switch to Laplace

Everyone agrees the normal distribution isn’t a great statistical model for stock market returns, but no generally accepted alternative has emerged.  A bottom-up simulation points to the Laplace distribution as a much better choice. A well-known problem in financial risk assessment is the failure of the normal distribution (also known as the Gaussian distribution) to correctly predict big up or down days on the stock …

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