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A Dynamic Structural Model for Stock Return Volatility and Trading Volume

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Author Info
Brock, William A
LeBaron, Blake D

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Abstract

This paper presents an adaptive beliefs model which is able to roughly reproduce the following features seen in the data: the autocorrelation functions of the volatility of returns and trading volume are positive with slowly decaying tails; the cross-correlation function of volatility is approximately zero for squared returns with past and future volumes and is positive for squared returns with current volumes; and abrupt changes in prices and returns occur which are hard to attach to 'news.' The last feature is obtained because the law of large numbers can fail in the large economy limit. Copyright 1996 by MIT Press.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 78 (1996)
Issue (Month): 1 (February)
Pages: 94-110
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Handle: RePEc:tpr:restat:v:78:y:1996:i:1:p:94-110

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  1. Mordecai Kurz & Maurizio Motolese, . "Endogenous Uncertainty and Market Volatility," Working Papers 99005, Stanford University, Department of Economics. [Downloadable!]
  2. David Goldbaum, 2000. "Profitability And Market Stability: Fundamentals And Technical Trading Rules," Computing in Economics and Finance 2000 85, Society for Computational Economics. [Downloadable!]
  3. Baosheng Yuan & Kan Chen, 2005. "Impact of Investor's Varying Risk Aversion on the Dynamics of Asset Price Fluctuations," Quantitative Finance Papers physics/0506224, arXiv.org. [Downloadable!]
  4. Diks, C.G.H. & Weide, R. van der, 2003. "Herding, A-synchronous Updating and Heterogeneity in Memory in a CBS," CeNDEF Working Papers 03-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
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  5. Mordecai Kurz, . "Endogenous Uncertainty: A Unified View of Market Volatility," Working Papers 98013, Stanford University, Department of Economics. [Downloadable!]
  6. Bronka Rzepkowski, 2001. "Heterogeneous Expectations, Currency Options and the Euro/Dollar Exchange Rate," Working Papers 2001-03, CEPII research center. [Downloadable!]
  7. Kenneth L. Judd & Felix Kubler & Karl Schmedders, 2000. "Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents," Discussion Papers 1294, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  8. Jing Yang, 1999. "Heterogeneous Beliefs, Intelligent Agents, and Allocative Efficiency in an Artificial Stock Market," Computing in Economics and Finance 1999 612, Society for Computational Economics. [Downloadable!]
  9. J. Doyne Farmer & Shareen Joshi, 2000. "The price dynamics of common trading strategies," Quantitative Finance Papers cond-mat/0012419, arXiv.org. [Downloadable!]
  10. Didier Sornette & Wei-Xing Zhou, 2005. "Importance of Positive Feedbacks and Over-confidence in a Self-Fulfilling Ising Model of Financial Markets," Quantitative Finance Papers cond-mat/0503607, arXiv.org, revised Mar 2005. [Downloadable!]
  11. Robert A. Connolly & Christopher T. Stivers, 2000. "Evidence on the Economics of Equity Return Volatility Clustering," Econometric Society World Congress 2000 Contributed Papers 1575, Econometric Society. [Downloadable!]
  12. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini Jr., 1997. "Robust Permanent Income and Pricing," Levine's Working Paper Archive 596, David K. Levine. [Downloadable!]
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  13. Noe, Thomas H. & Rebello, Michael J. & Wang, Jun, 2004. "The Evolution of Security Designs," SIFR Research Report Series 26, Institute for Financial Research. [Downloadable!]
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  14. Diks, C.G.H. & Weide, R. van der, 2003. "Heterogeneity as a natural source of randomness," CeNDEF Working Papers 03-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
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  15. repec:att:wimass:1920328 is not listed on IDEAS
  16. Li Li & Robert F. Engle, 1998. "Macroeconomic Announcements and Volatility of Treasury Futures," University of California at San Diego, Economics Working Paper Series 98-27, Department of Economics, UC San Diego. [Downloadable!]
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  17. Mordecai Kurz & Hehui Jin & Maurizio Motolese, 2005. "Determinants of stock market volatility and risk premia," Annals of Finance, Springer, vol. 1(2), pages 109-147, 07. [Downloadable!] (restricted)
  18. David Goldbaum, 2004. "On the Possibility of Informationally Efficient Markets: Part b," Working Papers Rutgers University, Newark 2004-011, Department of Economics, Rutgers University, Newark. [Downloadable!]
  19. David Goldbaum, 2004. "On the Possibility of Informationally Efficient Markets," Working Papers Rutgers University, Newark 2004-009, Department of Economics, Rutgers University, Newark. [Downloadable!]
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  20. Charles M. Jones & Owen Lamont & Robin Lumsdaine, 1996. "Public Information and the Persistence of Bond Market Volatility," NBER Working Papers 5446, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Baosheng Yuan & Kan Chen, 2006. "Impact of investor’s varying risk aversion on the dynamics of asset price fluctuations," Journal of Economic Interaction and Coordination, Springer, vol. 1(2), pages 189-214, November. [Downloadable!] (restricted)
  22. J. Doyne Farmer & Shareen Joshi, 2000. "The Price Dynamics of Common Trading Strategies," Working Papers 00-12-069, Santa Fe Institute.
    Other versions:
  23. Mordecai Kurz & Maurizio Motolese, . "Endogenous Uncertainty and Market Volatility," Working Papers 1999.27, Fondazione Eni Enrico Mattei. [Downloadable!]
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