Abstract
AbstractThe availability of the Dow Jones Industrial Average (DJIA) index over one century allows an investigation of the stability through time of the statistical properties of this time series, and a measurement of the performance of the main risk evaluation methodologies. The main risk methodologies are presented and discussed. The difference between fundamental limitations (that cannot be changed) and particular implementations (that can be tested and improved) is clearly made. Thanks to the large sample (28850 days), clear conclusions can be reached with simple statistics. In particular, the various risk methodologies perform just according to their respective ingredients used to build the volatility forecast (short versus long memory) and distributional assumption (normal versus fat‐tail). The time stability analysis is carried out using the algorithms developed for risk evaluations. After the volatility is properly discounted, the statistical properties of the DJIA index appear to be extraordinarily stable over time, despite the very significant changes that occurred during the 20th century.
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