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Interaction models for common long-range dependence in asset price volatilities

  • TEYSSIERE, Gilles
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    We consider a class of microeconomic models with interacting agents which replicate the main properties of asset prices time series: nonlinearities i levels and common degree of long-memory in the volatilities and co-volatilities of multivariate time series. For these models, longrange dependence in asset price volatility is the consequence of swings in opinions and herding behavior of market participants, which generate switches in the heteroskedastic structure of asset prices. Thus, the observed long-memory in asset prices volatility might be the outcome of a change-point in the conditional variance process, a conclusion supported by a wavelet analysis of the volatility series. This explains why volatility processes share only the properties of the second moments of long-memory processes, but not the properties of the first moments.

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    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003026.

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    Date of creation: 00 Feb 2003
    Date of revision:
    Handle: RePEc:cor:louvco:2003026
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    2. KOKOSZKA, Piotr & TEYSSIÈRE, Gilles, 2002. "Change-point detection in GARCH models: asymptotic and bootstrap tests," CORE Discussion Papers 2002065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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