Microscopic models for long ranged volatility correlations

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 ou...

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Bibliographic Details
Published inPhysica A Vol. 299; no. 1; pp. 28 - 39
Main Authors Giardina, Irene, Bouchaud, Jean-Philippe, Mézard, Marc
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.10.2001
Elsevier
Subjects
Condensed Matter
Disordered Systems and Neural Networks
Physics
Statistical Mechanics
Disordered Systems and Neural Networks
Statistical Mechanics
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Summary: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.
ISSN:0378-4371
1873-2119
0378-4371
DOI:10.1016/S0378-4371(01)00280-1