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Volatility cluster and herding

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  • Wagner, Friedrich

Abstract

Stock markets can be characterized by fat tails in the volatility distribution, clustering of volatilities and slow decay of their time correlations. For an explanation models with several mechanisms and consequently many parameters as the Lux–Marchesi model have been used. We show that a simple herding model with only four parameters leads to a quantitative description of the data. As a new type of data we describe the volatility cluster by the waiting time distribution, which can be used successfully to distinguish between different models.

Suggested Citation

  • Wagner, Friedrich, 2003. "Volatility cluster and herding," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 322(C), pages 607-619.
  • Handle: RePEc:eee:phsmap:v:322:y:2003:i:c:p:607-619
    DOI: 10.1016/S0378-4371(02)01810-1
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    Citations

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    Cited by:

    1. Cross, Rod & Grinfeld, Michael & Lamba, Harbir & Seaman, Tim, 2005. "A threshold model of investor psychology," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 354(C), pages 463-478.
    2. David Vidal-Tomás & Simone Alfarano, 2020. "An agent-based early warning indicator for financial market instability," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(1), pages 49-87, January.
    3. repec:ebl:ecbull:v:7:y:2007:i:15:p:1-8 is not listed on IDEAS
    4. Krause, Sebastian M. & Bornholdt, Stefan, 2013. "Spin models as microfoundation of macroscopic market models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4048-4054.
    5. Lux, Thomas & Alfarano, Simone, 2016. "Financial power laws: Empirical evidence, models, and mechanisms," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 3-18.
    6. Alfarano, Simone & Lux, Thomas, 2007. "A Noise Trader Model As A Generator Of Apparent Financial Power Laws And Long Memory," Macroeconomic Dynamics, Cambridge University Press, vol. 11(S1), pages 80-101, November.
    7. Haghani, Milad & Sarvi, Majid, 2017. "Social dynamics in emergency evacuations: Disentangling crowd’s attraction and repulsion effects," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 475(C), pages 24-34.
    8. Simone Alfarano & Thomas Lux & Friedrich Wagner, 2005. "Estimation of Agent-Based Models: The Case of an Asymmetric Herding Model," Computational Economics, Springer;Society for Computational Economics, vol. 26(1), pages 19-49, August.
    9. Lux, Thomas, 2006. "Financial power laws: Empirical evidence, models, and mechanism," Economics Working Papers 2006-12, Christian-Albrechts-University of Kiel, Department of Economics.
    10. Hyeong-Ohk Bae & Seung-Yeal Ha & Yongsik Kim & Hyuncheul Lim & Jane Yoo, 2020. "Volatility Flocking by Cucker–Smale Mechanism in Financial Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(3), pages 387-414, September.

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