Influence diagnostics for the structural sharpe model under normal/independent distributions

• Published in: Communications in statistics. Theory and methods Vol. 48; no. 8; pp. 1815 - 1835
• Main Authors: Zeller, Camila Borelli, Vilca, Filidor, Galea, Manuel
• Format: Journal Article
• Language: English
• Published: Philadelphia Taylor & Francis 18.04.2019; Taylor & Francis Ltd
• Subjects: Diagnostic systems; Diagnostics; EM-algorithm; Errors-in-variables models; Markets; Maximum likelihood estimators; Normal distribution; Normal/independent (NI) distributions; Portfolios; Sharpe's model; Statistical analysis
• ISSN: 0361-0926; 1532-415X
• DOI: 10.1080/03610926.2018.1444176

A method is proposed in this paper to assess the local influence of minor perturbations for the Sharpe model when the normal distribution is replaced by normal/independent (NI) distributions. The family of NI distributions is an attractive class of symmetric heavy-tailed densities that includes as special cases the normal, t-Student, slash, and the contaminated normal distributions. Since the returns of the market are not observable, the statistical analysis is carried out in the context of an errors-in-variables model. An influence analysis for detecting influential observations (atypical returns) is developed to investigate the sensitivity of the maximum likelihood estimators. Diagnostic measures are obtained based on the conditional expectation of the complete-data log-likelihood function. The results are illustrated by using a set of shares of companies traded in the Chilean stock market.