Stochastic volatility as a simple generator of apparent financial power laws and long memory
There has been renewed interest in power laws and various types of self-similarity in many financial time series. Most of these tests are visual in nature, and do not consider a wide range of possible candidate stochastic models capable of generating the observed results in small samples. This paper presents a relatively simple stochastic volatility model, which is able to produce visual power laws and long memory similar to those from actual return series using comparable sample sizes. These are small-sample features for the stochastic volatility model, since asymptotically it possesses none of these properties. The primary mechanism for this result is that volatility is assumed to have a driving process with a half life that is long relative to the tested aggregation ranges. It is argued that this might be a reasonable feature for financial, and other macroeconomic time series.
Volume (Year): 1 (2001)
Issue (Month): 6 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:1:y:2001:i:6:p:621-631. 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.