  This study empirically re-examines fat tails in stock return distributions by
applying statistical methods to an extensive dataset taken from the Korean
stock market. The tails of the return distributions are shown to be much fatter
in recent periods than in past periods and much fatter for small-capitalization
stocks than for large-capitalization stocks. After controlling for the 1997
Korean foreign currency crisis and using the GARCH filter models to control for
volatility clustering in the returns, the fat tails in the distribution of
residuals are found to persist. We show that market crashes and volatility
clustering may not sufficiently account for the existence of fat tails in
return distributions. These findings are robust regardless of period or type of
stock group.
