Heterogeneous expectations and long-range correlation of the volatility of asset returns
Inspired by the recent literature on aggregation theory, we attempt to relate the long-range correlation of the stock return volatility to the heterogeneity of the investors' expectations concerning the level of the future volatility. Based on a semi-parametric model of investors' anticipations, we make the connection between the distributional properties of the heterogeneity parameters and the auto-covariance/auto-correlation functions of the realized volatility. We report different behaviors, or change of convention, the observation of which depends on the market phase under consideration. In particular, we report and justify the fact that the volatility exhibits significantly longer memory during phases of a speculative bubble than during the recovery phase following the collapse of a speculative bubble.
Volume (Year): 11 (2011)
Issue (Month): 9 (November)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Davidson, James & Sibbertsen, Philipp, 2002.
"Generating schemes for long memory processes: Regimes, aggregation and linearity,"
2002,46, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
- Davidson, James & Sibbertsen, Philipp, 2005. "Generating schemes for long memory processes: regimes, aggregation and linearity," Journal of Econometrics, Elsevier, vol. 128(2), pages 253-282, October.
- Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996.
"Fractionally integrated generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 3-30, September.
- Tom Doan, . "RATS programs to replicate Baillie, Bollerslev, Mikkelson FIGARCH results," Statistical Software Components RTZ00009, Boston College Department of Economics.
- Dorsey, Robert E & Mayer, Walter J, 1995.
"Genetic Algorithms for Estimation Problems with Multiple Optima, Nondifferentiability, and Other Irregular Features,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 13(1), pages 53-66, January.
- Michael B. Gordy, . "GA.M: A Matlab routine for function maximization using a Genetic Algorithm," Matlab codes ga, , revised 12 Feb 1996.
- Lo, Andrew W. (Andrew Wen-Chuan), 1989.
"Long-term memory in stock market prices,"
3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- repec:ltr:wpaper:1999.01 is not listed on IDEAS
- Bernard Bollen & Brett Inder, 1999.
"Estimating Daily Volatility in Financial Markets Utilizing Intraday Data,"
1999.01, School of Economics, La Trobe University.
- Bollen, Bernard & Inder, Brett, 2002. "Estimating daily volatility in financial markets utilizing intraday data," Journal of Empirical Finance, Elsevier, vol. 9(5), pages 551-562, December.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003.
"Modeling and Forecasting Realized Volatility,"
Econometric Society, vol. 71(2), pages 579-625, March.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," Center for Financial Institutions Working Papers 01-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Labys, Paul, 2002. "Modeling and Forecasting Realized Volatility," Working Papers 02-12, Duke University, Department of Economics.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
- Banerjee, Abhijit V, 1993. "The Economics of Rumours," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 309-27, April.
- Colm Kearney & Kevin Daly, 1998. "The causes of stock market volatility in Australia," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 597-605.
- Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
- Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
- Barberis, Nicholas & Thaler, Richard, 2003.
"A survey of behavioral finance,"
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128
- Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-94, October-D.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Diebold, Francis X. & Inoue, Atsushi, 2001.
"Long memory and regime switching,"
Journal of Econometrics,
Elsevier, vol. 105(1), pages 131-159, November.
- T. Di Matteo & T. Aste & Michel M. Dacorogna, 2005.
"Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development,"
- Matteo, T. Di & Aste, T. & Dacorogna, Michel M., 2005. "Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 827-851, April.
- T. Di Matteo & T. Aste & M. M. Dacorogna, 2004. "Long term memories of developed and emerging markets: using the scaling analysis to characterize their stage of development," Papers cond-mat/0403681, arXiv.org.
- Cont, Rama & Bouchaud, Jean-Philipe, 2000. "Herd Behavior And Aggregate Fluctuations In Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 4(02), pages 170-196, June.
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Hosking, Jonathan R. M., 1996. "Asymptotic distributions of the sample mean, autocovariances, and autocorrelations of long-memory time series," Journal of Econometrics, Elsevier, vol. 73(1), pages 261-284, July.
- Sadorsky, Perry, 2003. "The macroeconomic determinants of technology stock price volatility," Review of Financial Economics, Elsevier, vol. 12(2), pages 191-205.
- Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
- Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:9:p:1329-1356. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.