ARCH in the G7 Equity Markets: A Speculative Explanation
This paper explores whether speculative activity can,in practice,generate the ARCH- type behavior found in .nancial time series.Specifically,G7 equity marke indices are examined for evidence of a dynamic whereby speculative interest is self-sustaining, that is,markets can become 'hot'. A straightforward model,taken from Faruqee and Redding [9 ],generates some testable implications of the idea.Tests of the model on the data show that not only does he model offer an explanation for volatility clustering,but also can be considered a statistical improvement on standard GARCH representations.
|Date of creation:||Apr 2001|
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- Caplin, Andrew & Leahy, John, 1994.
"Business as Usual, Market Crashes, and Wisdom after the Fact,"
American Economic Review,
American Economic Association, vol. 84(3), pages 548-565, June.
- Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes, and Wisdom after the Fact," Harvard Institute of Economic Research Working Papers 1594, Harvard - Institute of Economic Research.
- Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
- Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
- Tom Doan, "undated". "BKFILTER: RATS procedure to implement band pass filter using Baxter-King method," Statistical Software Components RTS00026, Boston College Department of Economics.
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