Stock Return Distributions

You stare raptly at a collection of stock returns and ask:

  • Are they distributed Normally or maybe Lognormally or may something else?
Or, you've found some strange formula which generates random returns and you ask:
  • Are they distributed Normally or maybe Lognormally or may something else?
If these question(s) keep you awake at night, maybe this spreadsheet will put you to sleep ...

Just RIGHT-click on the picture and Save Target to download a .ZIP'd file.

There's an explanation sheet which looks something like THIS

P.S. The spreadsheet may change from time to time ... without notice

On the "Explain" sheet is the formula:
      =Mean+Volatility*SQRT(-2 * LN(RAND()))*COS(2*PI() *RAND())
for generating Normally distributed random numbers.

That's the Box-Muller transformation which goes like so:

If X and Y are two uniformly distributed, independent random variables lying between 0 and 1, then:
      R = SQRT(-2 * lnX) cos(2π*Y)
is normally distributed with Mean = 0 and Standard Deviation = 1.

Hence
      R = M + V*SQRT(-2 * lnX) cos(2π*Y)
is Normally distributed with Mean = M and Standard Deviation V.

Nice, eh?

P.S.
R = SQRT(-2 * lnX) sin(2π*Y) is good, too :^)

Since generating the original spreadsheet displayed above ... it's changed
See Distributions-3