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The Truncated Levy Flight Model: A Comparative Analysis of Its Utility in Modeling the Standard and Poor's 500 and the Ghana Stock Exchange

Emmanuel Kengni Ncheuguim

Seth Appiah-Kubi

Joseph Ofori-Dankwa

Advancing Research Methodology in the African Context: Techniques, Methods, and Designs

ISBN: 978-1-78441-490-0, eISBN: 978-1-78441-489-4

Publication date: 26 November 2014

Abstract

Purpose

The Truncated Levy Flight (TLF) model has been successfully used to model the return distribution of stock markets in developed economies and a few developing economies such as India. Our primary purpose is to use the TLF to model the S&P 500 and the firms operating in the Ghana Stock Exchange (GSE).

Methodology

We assess the predictive efficacy of the TLF model by comparing a simulation of the Standard and Poor's 500 (S&P 500) index and that of firms in the stock market in Ghana, using data from the same time period (June 2007–September 2013).

Finding

We find that the Levy models relatively accurately models the return distributions of the S&P 500 but does not accurately model the return distributions of firms in the Ghana stock market.

Limitations/implications

A major limitation is that we examined stock market data only from Ghana, while there are over 29 other African stock markets. We suggest that doctoral students and faculty can compare these stock markets either on the basis of age or the number of firms listed. For example, the oldest stock market was set up in 1883 in Egypt, while the more recent ones were set up in 2012 in the Seychelles and in Somalia.

Practical implications

Scholarly inquiry about the stock markets in Africa represents a rich area of research that we will encourage doctoral students and faculty to go into.

Originality/value

There has been little research done regarding the TLF model and African stock markets and this research has much utility and high level of originality.

Keywords

Citation

Ncheuguim, E.K., Appiah-Kubi, S. and Ofori-Dankwa, J. (2014), "The Truncated Levy Flight Model: A Comparative Analysis of Its Utility in Modeling the Standard and Poor's 500 and the Ghana Stock Exchange", Advancing Research Methodology in the African Context: Techniques, Methods, and Designs (Research Methodology in Strategy and Management, Vol. 10), Emerald Group Publishing Limited, Leeds, pp. 215-233. https://doi.org/10.1108/S1479-838720140000010010

Publisher

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Emerald Group Publishing Limited