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On a universal mechanism for long-range volatility correlations

Author

Listed:
  • J-P. Bouchaud
  • I. Giardina
  • M. Mzard

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. We show that real market data can be surprisingly well accounted for by these simple models.

Suggested Citation

  • J-P. Bouchaud & I. Giardina & M. Mzard, 2001. "On a universal mechanism for long-range volatility correlations," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 212-216.
    • Handle: RePEc:taf:quantf:v:1:y:2001:i:2:p:212-216
    DOI: 10.1088/1469-7688/1/2/302
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    Cited by:

    1. J. Coulon & Y. Malevergne, 2011. "Heterogeneous expectations and long-range correlation of the volatility of asset returns," Quantitative Finance, Taylor & Francis Journals, vol. 11(9), pages 1329-1356, November.
    2. Katahira, Kei & Chen, Yu & Akiyama, Eizo, 2021. "Self-organized Speculation Game for the spontaneous emergence of financial stylized facts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 582(C).
    3. Katahira, Kei & Chen, Yu & Hashimoto, Gaku & Okuda, Hiroshi, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 503-518.
    4. Marco Airoldi & Vito Antonelli & Bruno Bassetti & Andrea Martinelli & Marco Picariello, 2004. "Long Range Interaction Generating Fat-Tails in Finance," GE, Growth, Math methods 0404006, University Library of Munich, Germany, revised 27 Apr 2004.

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