ARCH in the G7 Equity Markets: A Speculative Explanation
AbstractThis paper explores whether speculative activity can,in practice,generate the ARCH- type behavior found in .nancial time series.Specifically,G7 equity marke indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining, that is,markets can become 'hot'. A straightforward model,taken from Faruqee and Redding [9 ],generates some testable implications of the idea.Tests of the model on the data show that not only does he model offer an explanation for volatility clustering,but also can be considered a statistical improvement on standard GARCH representations.
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Bibliographic InfoPaper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2001_3.
Date of creation: Apr 2001
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