Microscopic models for long ranged volatility correlations

Irene Giardina, Jean-Philippe Bouchaud and Marc Mézard

Physica A: Statistical Mechanics and its Applications, 2001, vol. 299, issue 1, 28-39

Abstract: We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between ‘active’ and ‘inactive’ strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy, or a more sophisticated version that includes some price dynamics. We show that real market data can be surprisingly well accounted for by these simple models.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:299:y:2001:i:1:p:28-39

DOI: 10.1016/S0378-4371(01)00280-1

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