Bubbles and long-range dependence in asset prices volatilities

Alan Kirman and Gilles Teyssière

No 2002060, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: A model for a financial asset is constructed with two types of agents. The agents differ in terms of their beliefs. The proportions of the two types change over time according to a stochastic process which models the interaction between the agents. Thus, unlike other models, agents do not persist in holding "wrong" beliefs. Bubble-like phenomena in the assetprice occur. We consider several tests for detecting long range dependence and change-points in the conditional variance process. Although the model seems to generate long-memory properties of the volatility series, we show that this is due to the switching of regimes which are detected by the tests we propose.

Keywords: interaction; bubbles; testing; long-memory; heteroskedasticity; change-point (search for similar items in EconPapers)
JEL-codes: C22 C52 D40 G12 (search for similar items in EconPapers)
Date: 2002-10
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2002060

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