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Microeconomic models for long-memory in the volatility of financial time series

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  • KIRMAN, Alan
  • TEYSSIÈRE, Gilles

Abstract

We show that a class of microeconomic behavioral models with interacting agents, derived from Kirman (1991, 1993), can replicate the empirical long-memory properties of the two first conditional moments of financial time series. The essence of these models is that the forecasts and thus the desired trades of the individuals in the markets are influenced, directly,or indirectly by those of the other participants. These "field effects" generate "herding" behaviour which affects the structure of the asset price dynamics. The series of returns generated by these models display the same empirical properties as financial returns: returns are I(0), the series of absolute and squared returns display strong dependence, while the series of absolute returns do not display a trend. Furthermore, this class of models is able to replicate the common long-memory properties in the volatility and co-volatility of financial time series, revealed by Teyssi

Suggested Citation

  • KIRMAN, Alan & TEYSSIÈRE, Gilles, 2002. "Microeconomic models for long-memory in the volatility of financial time series," CORE Discussion Papers 2002056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2002056
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-2002.html
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    References listed on IDEAS

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    More about this item

    Keywords

    long-memory; microeconomic models; field effects; semiparametric tests; conditional heteroskedasticity;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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