The Asymptotic Distribution of Extreme Stock Market Returns

Abstract

This article presents a study of extreme stock market price movements. According to extreme value theory, the form of the distribution of extreme returns is precisely known and independent of the process generating returns. Using data for an index of the most traded stocks on the New York Stock Exchange for the period 1885-1990, the author shows empirically that the extreme returns obey a Frechet distribution. Copyright 1996 by University of Chicago Press.