Heterogeneous expectations and long-range correlation of the volatility of asset returns
AbstractInspired by the recent literature on aggregation theory, we attempt to relate the long-range correlation of the stock return volatility to the heterogeneity of the investors' expectations concerning the level of the future volatility. Based on a semi-parametric model of investors' anticipations, we make the connection between the distributional properties of the heterogeneity parameters and the auto-covariance/auto-correlation functions of the realized volatility. We report different behaviors, or change of convention, the observation of which depends on the market phase under consideration. In particular, we report and justify the fact that the volatility exhibits significantly longer memory during phases of a speculative bubble than during the recovery phase following the collapse of a speculative bubble.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 11 (2011)
Issue (Month): 9 (November)
Contact details of provider:
Web page: http://www.tandfonline.com/RQUF20
Other versions of this item:
- Jerome Coulon & Yannick Malevergne, 2008. "Heterogeneous expectations and long range correlation of the volatility of asset returns," Papers 0808.1538, arXiv.org.
- Jérôme Coulon & Yannick Malevergne, 2010. "Heterogeneous expectations and long range correlation of the volatility of asset returns," Working Papers halshs-00541953, HAL.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Davidson, James & Sibbertsen, Philipp, 2002.
"Generating schemes for long memory processes: Regimes, aggregation and linearity,"
2002,46, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
- Davidson, James & Sibbertsen, Philipp, 2005. "Generating schemes for long memory processes: regimes, aggregation and linearity," Journal of Econometrics, Elsevier, vol. 128(2), pages 253-282, October.
- Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
- Lo, Andrew W, 1991.
"Long-Term Memory in Stock Market Prices,"
Econometric Society, vol. 59(5), pages 1279-313, September.
- Tom Doan, . "RSSTATISTIC: RATS procedure to compute R/S Statistic (classical or Lo's modified)," Statistical Software Components RTS00191, Boston College Department of Economics.
- Andrew W. Lo, 1989. "Long-term Memory in Stock Market Prices," NBER Working Papers 2984, National Bureau of Economic Research, Inc.
- Lo, Andrew W. (Andrew Wen-Chuan), 1989. "Long-term memory in stock market prices," Working papers 3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Sadorsky, Perry, 2003. "The macroeconomic determinants of technology stock price volatility," Review of Financial Economics, Elsevier, vol. 12(2), pages 191-205.
- Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Bollen, Bernard & Inder, Brett, 2002.
"Estimating daily volatility in financial markets utilizing intraday data,"
Journal of Empirical Finance,
Elsevier, vol. 9(5), pages 551-562, December.
- Bernard Bollen & Brett Inder, 1999. "Estimating Daily Volatility in Financial Markets Utilizing Intraday Data," Working Papers 1999.01, School of Economics, La Trobe University.
- Diebold, Francis X. & Inoue, Atsushi, 2001.
"Long memory and regime switching,"
Journal of Econometrics,
Elsevier, vol. 105(1), pages 131-159, November.
- Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Labys, Paul, 2002.
"Modeling and Forecasting Realized Volatility,"
02-12, Duke University, Department of Economics.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," Center for Financial Institutions Working Papers 01-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- T. Di Matteo & T. Aste & Michel M. Dacorogna, 2005.
"Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development,"
- Matteo, T. Di & Aste, T. & Dacorogna, Michel M., 2005. "Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 827-851, April.
- T. Di Matteo & T. Aste & M. M. Dacorogna, 2004. "Long term memories of developed and emerging markets: using the scaling analysis to characterize their stage of development," Papers cond-mat/0403681, arXiv.org.
- Banerjee, Abhijit V, 1993. "The Economics of Rumours," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 309-27, April.
- Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-94, October-D.
- Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996.
"Fractionally integrated generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 3-30, September.
- Tom Doan, . "RATS programs to replicate Baillie, Bollerslev, Mikkelson FIGARCH results," Statistical Software Components RTZ00009, Boston College Department of Economics.
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Nicholas Barberis & Richard Thaler, 2002.
"A Survey of Behavioral Finance,"
NBER Working Papers
9222, National Bureau of Economic Research, Inc.
- Hosking, Jonathan R. M., 1996. "Asymptotic distributions of the sample mean, autocovariances, and autocorrelations of long-memory time series," Journal of Econometrics, Elsevier, vol. 73(1), pages 261-284, July.
- Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
- Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
- Colm Kearney & Kevin Daly, 1998. "The causes of stock market volatility in Australia," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 597-605.
- Samuel E. Vazquez, 2009. "Scale Invariance, Bounded Rationality and Non-Equilibrium Economics," Papers 0902.3840, arXiv.org.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.