Blue Chip Stock Daily Log Return Fits

The daily log return data for a set of blue chip stocks over the past 30 years are presented here: GE, XOM, GS, BRK.A, WMT, TGT, MSFT, MRK, GOOG, YHOO, JPM and WFC. Their kurtoses are around 10, and they fit well with eta near 0.5 to 0.6 when the company history is long enough.

Sometimes a stock suffers a sudden crash, such as the 1987 crash, the Merck VIOXX recall or the large volatility of the 2008 financial crisis. A stock can also jump, as Yahoo did during merger talks with Microsoft. Those one day drops and jumps are difficult to capture in the first order distribution. To obtain a better fit to the majority of the data, the extra large one day price changes are removed. In these cases the measured kurtoses look lower than in the actual data.

The conclusion is that all stocks likely have a minimum eta near 0.5, or a kurtosis above 5 to 10. This adds strong evidence that tail risk is omnipresent. Anything that can deteriorate and die has tail risk.

General Electric was the oldest industrial company in the set. Goldman Sachs was the investment banking power house. Berkshire Hathaway is Warren Buffett's empire. ExxonMobil is the energy giant. Walmart is the price leader. Target stands for value. Microsoft dominated personal computing. Merck was the blockbuster drug researcher. Google became the internet search giant. Yahoo was the search pioneer. JPMorgan led the Morgan family. Wells Fargo was the disciplined banker. Data is split and dividend adjusted.

Data source: Yahoo Finance.