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Long Memory and Tail dependence in Trading Volume and Volatility

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  • Eduardo Rossi

    ()
    (Dipartimento di economia politica e metodi quantitativi, University of Pavia, Italy.)

  • Paolo Santucci de Magistris

    (Dipartimento di economia politica e metodi quantitativi, University of Pavia, Italy)

Abstract

This paper investigates long-run dependencies of volatility and volume, supposing that are driven by the same informative process. Log-realized volatility and log-volume are characterized by upper and lower tail dependence, where the positive tail dependence is mainly due to the jump component. The possibility that volume and volatility are driven by a common fractionally integrated stochastic trend, as the Mixture Distribution Hypothesis prescribes, is rejected. We model the two series with a bivariate Fractionally Integrated VAR specification. The joint density is parameterized by means of with different copula functions, which provide flexibility in modeling the dependence in the extremes and are computationally convenient. Finally, we present a simulation exercise to validate the model.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2009-30.

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Length: 43
Date of creation: 13 Jul 2009
Date of revision:
Handle: RePEc:aah:create:2009-30

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Realized Volatility; Trading Volume; Fractional Cointegration; Tail dependence; Copula Modeling;

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Cited by:
  1. Piotr Gurgul & Robert Syrek, 2013. "Testing of Dependencies between Stock Returns and Trading Volume by High Frequency Data," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 11(4 (Winter), pages 353-373.

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