Comparison between volatility return intervals of the S&P 500 index and two common models

I. Vodenska-Chitkushev (), F. Z. Wang, P. Weber, K. Yamasaki, S. Havlin and H. E. Stanley

The European Physical Journal B: Condensed Matter and Complex Systems, 2008, vol. 61, issue 2, 217-223

Abstract: We analyze the S&P 500 index data for the 13-year period, from January 1, 1984 to December 31, 1996, with one data point every 10 min. For this database, we study the distribution and clustering of volatility return intervals, which are defined as the time intervals between successive volatilities above a certain threshold q. We find that the long memory in the volatility leads to a clustering of above-median as well as below-median return intervals. In addition, it turns out that the short return intervals form larger clusters compared to the long return intervals. When comparing the empirical results to the ARMA-FIGARCH and fBm models for volatility, we find that the fBm model predicts scaling better than the ARMA-FIGARCH model, which is consistent with the argument that both ARMA-FIGARCH and fBm capture the long-term dependence in return intervals to a certain extent, but only fBm accounts for the scaling. We perform the Student's t-test to compare the empirical data with the shuffled records, ARMA-FIGARCH and fBm. We analyze separately the clusters of above-median return intervals and the clusters of below-median return intervals for different thresholds q. We find that the empirical data are statistically different from the shuffled data for all thresholds q. Our results also suggest that the ARMA-FIGARCH model is statistically different from the S&P 500 for intermediate q for both above-median and below-median clusters, while fBm is statistically different from S&P 500 for small and large q for above-median clusters and for small q for below-median clusters. Neither model can fully explain the entire regime of q studied. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2008

Keywords: 89.65.Gh Economics; econophysics, financial markets, business and management, 05.45.Tp Time series analysis, 89.75.Da Systems obeying scaling laws, (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (10)

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DOI: 10.1140/epjb/e2008-00066-4

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