The consentaneous model of the financial markets exhibiting spurious nature of long-range memory

Vygintas Gontis and Aleksejus Kononovicius

Papers from arXiv.org

Abstract: It is widely accepted that there is strong persistence in the volatility of financial time series. The origin of the observed persistence, or long-range memory, is still an open problem as the observed phenomenon could be a spurious effect. Earlier we have proposed the consentaneous model of the financial markets based on the non-linear stochastic differential equations. The consentaneous model successfully reproduces empirical probability and power spectral densities of volatility. This approach is qualitatively different from models built using fractional Brownian motion. In this contribution we investigate burst and inter-burst duration statistics of volatility in the financial markets employing the consentaneous model. Our analysis provides an evidence that empirical statistical properties of burst and inter-burst duration can be explained by non-linear stochastic differential equations driving the volatility in the financial markets. This serves as an strong argument that long-range memory in finance can have spurious nature.

Date: 2017-12, Revised 2018-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Physica A 505 (2018): 1075-1083

Downloads: (external link)
http://arxiv.org/pdf/1712.05121 Latest version (application/pdf)

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:arx:papers:1712.05121

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().