Chapter 2: STATISTICAL LAWS AND CENTRAL LIMIT THEOREM APPLICATION: STOCK RETURN DISTRIBUTIONS

In this chapter, we shall build on the fundamental notions of probability distribution and statistics in the last chapter, and extend consideration to a sequence of random variables. In financial application, it is mostly the case that the sequence is indexed by time, hence a stochastic process. Interesting statistical laws or mathematical theories result when we look at the relationships within a stochastic process. We introduce an application of the Central Limit Theorem to the study of stock return distributions.