Microscopic models for long ranged volatility correlations

Irene Giardina, Jean-Philippe Bouchaud and Marc Mezard
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Jean-Philippe Bouchaud: Science & Finance, Capital Fund Management
Marc Mezard: Universite Paris Sud (Orsay)

No 500024, Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management

Abstract: We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy, or a more sophisticated version that includes some price dynamics. We show that real market data can be surprisingly well accounted for by these simple models.

JEL-codes: G10 (search for similar items in EconPapers)
Date: 2001-01
New Economics Papers: this item is included in nep-ets, nep-fin and nep-fmk
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Published in Physica A 299 (1-2) (2001) pp. 28-39.

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Persistent link: https://EconPapers.repec.org/RePEc:sfi:sfiwpa:500024

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