Microscopic Models for Long Ranged Volatility Correlations

Irene Giardina 1, Jean-Philippe Bouchaud 2, 3, Marc Mézard 4

Physica A 299 (2001) 28-39

We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy, or a more sophisticated version that includes some price dynamics. We show that real market data can be surprisingly well accounted for by these simple models.

  • 1. Service de Physique Théorique (SPhT),
    CNRS : URA2306 – CEA : DSM/SPHT
  • 2. Service de physique de l'état condensé (SPEC),
    CNRS : URA2464 – CEA : DSM/IRAMIS
  • 3. Science & Finance,
    Sciences et Finances
  • 4. Laboratoire de Physique Théorique et Modèles Statistiques (LPTMS),
    CNRS : UMR8626 – Université Paris XI - Paris Sud