The Applications of Mixtures of Normal Distributions in Empirical Finance: A Selected Survey

Abstract

This paper provides a selected review of the recent developments and applications of mixtures of normal (MN) distribution models in empirical finance. Once attractive property of the MN model is that it is flexible enough to accommodate various shapes of continuous distributions, and able to capture leptokurtic, skewed and multimodal characteristics of financial time series data. In addition, the MN-based analysis fits well with the related regime-switching literature. The survey is conducted under two broad themes: (1) minimum-distance estimation methods, and (2) financial modeling and its applications.Mixtures of Normal, Maximum Likelihood, Moment Generating Function, Characteristic Function, Switching Regression Model, (G) ARCH Model, Stochastic Volatility Model, Autoregressive Conditional Duration Model, Stochastic Duration Model, Value at Risk.