ARCH in the G7 Equity Markets: A Speculative Explanation

Lee Redding

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper explores whether speculative activity can,in practice,generate the ARCH- type behavior found in .nancial time series.Specifically,G7 equity marke indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining, that is,markets can become 'hot'. A straightforward model,taken from Faruqee and Redding [9 ],generates some testable implications of the idea.Tests of the model on the data show that not only does he model offer an explanation for volatility clustering,but also can be considered a statistical improvement on standard GARCH representations.

Date: 2001-04
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2001_3

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