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A Dynamic Structural Model for Stock Return Volatility and Trading Volume

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  • Brock, William A
  • LeBaron, Blake D

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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  • Brock, William A & LeBaron, Blake D, 1996. "A Dynamic Structural Model for Stock Return Volatility and Trading Volume," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 94-110, February.
    • Handle: RePEc:tpr:restat:v:78:y:1996:i:1:p:94-110
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