On return-volatility correlation in financial dynamics
AbstractWith the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the return-volatility correlation of the time series, while other characteristics, such as the probability distribution of returns and long-range time-correlation of volatilities etc., remain essentially unchanged. This suggests that the leverage effect or anti-leverage effect in financial markets arises from a kind of feedback return-volatility interactions, rather than the long-range time-correlation of volatilities and asymmetric probability distribution of returns. Further, we show that large volatilities dominate the return-volatility correlation in financial dynamics.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1202.0342.
Date of creation: Feb 2012
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Publication status: Published in published in EPL (Europhysics Letters), Volume 88, Issue 2, pp. 28003 (2009)
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-15 (All new papers)
- NEP-ETS-2012-02-15 (Econometric Time Series)
- NEP-FDG-2012-02-15 (Financial Development & Growth)
- NEP-FMK-2012-02-15 (Financial Markets)
- NEP-MAC-2012-02-15 (Macroeconomics)
- NEP-MST-2012-02-15 (Market Microstructure)
- NEP-RMG-2012-02-15 (Risk Management)
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