Prices are macro-observables! Stylized facts from evolutionary finance

S. Reimann () and A. Tupak

Computational Economics, 2007, vol. 29, issue 3, 313-331

Abstract: Prices are macro-observables of a financial market that result from the trading actions of a huge number of individual investors. Major stylized facts of empirical asset returns concern (i) non-Gaussian distribution of empirical asset returns and (ii) volatility clustering, i.e., the slow decay of auto- correlations of absolute returns. We propose a model for the aggregate dynamics of the market which is generated by the coupling of a ‘slow’ and a ‘fast’ dynamical component, where the ‘fast’ component can be seen as a perturbation of the ‘slow’ one. Statistical properties of price changes in this model are estimated by simulation; sample size is 4 × 10 6 . It is shown that increasing the decoupling of these two dynamical levels generates a crossover in the distribution of log returns from a concave Gaussian-like distribution to a convex, truncated Levy-like one. For a sufficiently large degree of dynamic decoupling, the return trails exhibit pronounced volatility clustering. Copyright Springer Science+Business Media, LLC 2007

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10614-006-9065-z (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:29:y:2007:i:3:p:313-331

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-006-9065-z

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().