Arch in the G7 Equity Markets: A Speculative Explanation

15 Pages Posted: 20 Jun 2002

See all articles by Lee Redding

Lee Redding

University of Michigan at Dearborn - Department of Accounting and Finance

Date Written: November 2001

Abstract

This paper explores whether speculative activity can, in practice, generate the ARCH-type behavior found in financial time series. Specifically, G7 equity market 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 the model offer an explanation for volatility clustering, but also can be considered a statistical improvement on standard GARCH representations.

JEL Classification: G12, F30, G15

Suggested Citation

Redding, Lee, Arch in the G7 Equity Markets: A Speculative Explanation (November 2001). EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=314864 or http://dx.doi.org/10.2139/ssrn.314864

Lee Redding (Contact Author)

University of Michigan at Dearborn - Department of Accounting and Finance ( email )

Dearborn, MI 48128-1491
United States
313-593-4680 (Phone)
313-593-5636 (Fax)

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