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Asymmetric volatility, volatility clustering, and herding agents with a borrowing constraint

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  • Yamamoto, Ryuichi

Abstract

Recent empirical research has documented asymmetric volatility and volatility clustering in stock markets. We conjecture that a limit of arbitrage due to a borrowing constraint and herding behavior by investors are related to these phenomena. This study conducts simulation analyses on a spin model where borrowing constrained agents imitate their nearest neighbors but switch their strategies to a different one intermittently. We show that herding matters for volatility clustering while a borrowing constraint intensifies the asymmetry of volatility through the herding effect.

Suggested Citation

  • Yamamoto, Ryuichi, 2010. "Asymmetric volatility, volatility clustering, and herding agents with a borrowing constraint," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(6), pages 1208-1214.
    • Handle: RePEc:eee:phsmap:v:389:y:2010:i:6:p:1208-1214
    DOI: 10.1016/j.physa.2009.11.038
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    Cited by:

    1. Yue Chen & Juan Lin & Ximing Wu, 2022. "Revisiting the return‐volatility relationship of exchange rates: New evidence from offshore RMB," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 277-294, August.
    2. 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.
    3. Miikka Kaurijoki & Jussi Nikkinen & Janne Äijö, 2015. "Return‐Implied Volatility Dynamics of High and Low Yielding Currencies," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(11), pages 1026-1041, November.

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