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Long Memory and Tail dependence in Trading Volume and Volatility

Eduardo Rossi and Paolo Santucci de Magistris

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper investigates long-run dependencies of volatility and volume, supposing that are driven by the same informative process. Log-realized volatility and log-volume are characterized by upper and lower tail dependence, where the positive tail dependence is mainly due to the jump component. The possibility that volume and volatility are driven by a common fractionally integrated stochastic trend, as the Mixture Distribution Hypothesis prescribes, is rejected. We model the two series with a bivariate Fractionally Integrated VAR specification. The joint density is parameterized by means of with different copula functions, which provide flexibility in modeling the dependence in the extremes nd are computationally convenient. Finally, we present a simulation exercise to validate the model.

Keywords: Realized Volatility; Trading Volume; Fractional Cointegration; Tail dependence; Copula Modeling (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Pages: 43
Date: 2009-07-13
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Long memory and tail dependence in trading volume and volatility (2013) Downloads
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