Journal of Applied Probability
- J. Appl. Probab.
- Volume 53, Number 1 (2016), 121-129.
Weak convergence to the Student and Laplace distributions
One often observed empirical regularity is a power-law behavior of the tails of some distribution of interest. We propose a limit law for normalized random means that exhibits such heavy tails irrespective of the distribution of the underlying sampling units: the limit is a t-distribution if the random variables have finite variances. The generative scheme is then extended to encompass classic limit theorems for random sums. The resulting unifying framework has wide empirical applicability which we illustrate by considering two empirical regularities in two different fields. First, we turn to urban geography and explain why city-size growth rates are approximately t-distributed, using a model of random sector growth based on the central place theory. Second, turning to an issue in finance, we show that high-frequency stock index returns can be modeled as a generalized asymmetric Laplace process. These empirical illustrations elucidate the situations in which heavy tails can arise.
J. Appl. Probab., Volume 53, Number 1 (2016), 121-129.
First available in Project Euclid: 8 March 2016
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Schluter, Christian; Trede, Mark. Weak convergence to the Student and Laplace distributions. J. Appl. Probab. 53 (2016), no. 1, 121--129. https://projecteuclid.org/euclid.jap/1457470563