Microeconomic models for long-memory in the volatility of financial time series

Alan Kirman and Gilles Teyssière

No 2002056, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We show that a class of microeconomic behavioral models with interacting agents, derived from Kirman (1991, 1993), can replicate the empirical long-memory properties of the two first conditional moments of financial time series. The essence of these models is that the forecasts and thus the desired trades of the individuals in the markets are influenced, directly,or indirectly by those of the other participants. These "field effects" generate "herding" behaviour which affects the structure of the asset price dynamics. The series of returns generated by these models display the same empirical properties as financial returns: returns are I(0), the series of absolute and squared returns display strong dependence, while the series of absolute returns do not display a trend. Furthermore, this class of models is able to replicate the common long-memory properties in the volatility and co-volatility of financial time series, revealed by Teyssi

Keywords: long-memory; microeconomic models; field effects; semiparametric tests; conditional heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C15 C22 D40 (search for similar items in EconPapers)
Date: 2002-03
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Citations: View citations in EconPapers (93)

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Related works:
Journal Article: Microeconomic Models for Long Memory in the Volatility of Financial Time Series (2002)
Working Paper: Microeconomic models for long memory in the volatility of financial time series (2002)
Working Paper: Microeconomic Models for Long-Memory in the Volatility of Financial Time Series (2001)
Working Paper: Microeconomic Models for Long-Memory in the Volatility of Financial Time Series (2001)
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