Analysis of Malaysia Stock Return Using Mixture of Normal Distributions

Authors

  • Zetty Ain Kamaruzzaman School of Mathematical Sciences, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia
  • Zaidi Isa School of Mathematical Sciences, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia

Keywords:

Bursa Malaysia stock market index, behavior of financial time series, distributional properties of Normal mixtures, EM algorithm, mixture of Normal distributions, model selection criteria, stock market return modeling

Abstract

In this paper, two component univariate mixtures of Normal distributions is proposed to accommodate the non-normality and asymmetry characteristics of financial time series data as found in the distribution of monthly rates of returns for Bursa Malaysia Index Series namely the FTSE Bursa Malaysia Composite Index (FBMKLCI) from July 1990 until July 2010. Firstly, we give some basic definitions and concepts of mixtures of Normal distributions. Next, we explore some of its distribution properties. In support of determining the number of components, we use the information criterion for model selection. The measures provide supporting evidence in favour of the two-component mixtures of Normal distributions. For parameter estimation, we apply the most commonly used Maximum Likelihood Estimation (MLE) via the EM algorithm to fit the two-component mixtures of Normal distributions using data set on logarithmic stock return of Bursa Malaysia index.

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Published

2015-06-26

How to Cite

Kamaruzzaman, Z. A., & Isa, Z. (2015). Analysis of Malaysia Stock Return Using Mixture of Normal Distributions. International Journal of Sciences: Basic and Applied Research (IJSBAR), 23(1), 398–412. Retrieved from https://www.gssrr.org/index.php/JournalOfBasicAndApplied/article/view/4235

Issue

Vol. 23 No. 1 (2015)

Section

Articles

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