Stochastic volatility of financial markets as the fluctuating rate of trading: An empirical study

A. Christian Silva and Victor Yakovenko

Physica A: Statistical Mechanics and its Applications, 2007, vol. 382, issue 1, 278-285

Abstract: We present an empirical study of the subordination hypothesis for a stochastic time series of a stock price. The fluctuating rate of trading is identified with the stochastic variance of the stock price, as in the continuous-time random walk (CTRW) framework. The probability distribution of the stock price changes (log-returns) for a given number of trades N is found to be approximately Gaussian. The probability distribution of N for a given time interval Δt is non-Poissonian and has an exponential tail for large N and a sharp cutoff for small N. Combining these two distributions produces a non-trivial distribution of log-returns for a given time interval Δt, which has exponential tails and a Gaussian central part, in agreement with empirical observations.

Keywords: Stock market; Stochastic volatility; Subordination; Heston model (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (16)

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Working Paper: Stochastic volatility of financial markets as the fluctuating rate of trading: an empirical study (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:382:y:2007:i:1:p:278-285

DOI: 10.1016/j.physa.2007.03.051

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