On a Universal Mechanism for Long Ranged Volatility Correlations

14 Pages Posted: 11 Jan 2001

See all articles by Jean-Philippe Bouchaud

Jean-Philippe Bouchaud

Capital Fund Management

Irene Giardina

Sapienza University of Rome - Department of Physics; Centre d'Etudes de Saclay (CEA) - Service de Physique Theorique (SPHT)

Marc Mezard

Université Paris XI Sud - LPSMS

Date Written: December 9, 2000

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 rather well accounted for by these simple models.

JEL Classification: C32, C71, D84

Suggested Citation

Bouchaud, Jean-Philippe and Giardina, Irene and Mezard, Marc, On a Universal Mechanism for Long Ranged Volatility Correlations (December 9, 2000). Available at SSRN: https://ssrn.com/abstract=255155 or http://dx.doi.org/10.2139/ssrn.255155

Jean-Philippe Bouchaud (Contact Author)

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

Irene Giardina

Sapienza University of Rome - Department of Physics ( email )

Piazzale Aldo Moro 2
Rome, I-00185
Italy
+39 06 49914527 (Phone)
+39 06 4957697 (Fax)

Centre d'Etudes de Saclay (CEA) - Service de Physique Theorique (SPHT) ( email )

Orme des Merisiers
91191 Gif-sur-Yvette Cedex
France
+ 33 1 69 08 73 66 (Phone)

Marc Mezard

Université Paris XI Sud - LPSMS ( email )

Batiment 100
Orsay, 91405
France
+ 33 1 69 15 73 33 (Phone)

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