The distribution of annual returns over long periods for stocks is more closely related to the normal distribution than the lognormal distribution.

Question

Quizplus · Accepted Answer

Over long periods, the distribution of annual returns for stocks is more closely related to the lognormal distribution because stock prices cannot go below zero and tend to have a skewed distribution, with a long right tail due to the multiplicative nature of returns.

The Distribution of Annual Returns Over Long Periods for Stocks