Bubbles and long-range dependence in asset prices volatilities
AbstractA model for a financial asset is constructed with two types of agents. The agents differ in terms of their beliefs. The proportions of the two types change over time according to a stochastic process which models the interaction between the agents. Thus, unlike other models, agents do not persist in holding "wrong" beliefs. Bubble-like phenomena in the assetprice occur. We consider several tests for detecting long range dependence and change-points in the conditional variance process. Although the model seems to generate long-memory properties of the volatility series, we show that this is due to the switching of regimes which are detected by the tests we propose.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002060.
Date of creation: 00 Oct 2002
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interaction; bubbles; testing; long-memory; heteroskedasticity; change-point;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- Bottazzi, Giulio & Dosi, Giovanni & Rebesco, Igor, 2005. "Institutional architectures and behavioral ecologies in the dynamics of financial markets," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 197-228, February.
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