On the Normality of Stock Return Distributions: Latin American Markets, 2000-2007

Abstract

An increasing amount of empirical research conducted at different times and in different geographical settings challenges the traditional assumption of the normal distribution of stock returns evident in the main body of financial theory. This article involved testing the normality assumption for the behavior of market returns in the main Latin American stock markets. Normality tests were applied to daily market returns for the period 2000 to 2007 for the main security markets of Peru, Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela. The normality hypothesis is rejected for all these markets. The article also involved testing the normality assumption for market returns over longer periods, considering specifically blocks of 5, 20, 60, and 120 consecutive market days between 2000 and 2007. In general, the behavior of the returns approaches a normal distribution as the length of time increases.