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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.