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Prices are macro-observables! Stylized facts from evolutionary finance


Reimann, S; Tupak, A (2007). Prices are macro-observables! Stylized facts from evolutionary finance. Computational Economics, 29(3-4):313-331.

Abstract

Prices are macro-observables of a financial market that result from the trading actions of a huge number of individual investors. Major stylized facts of empirical asset returns concern (i) non-Gaussian distribution of empirical asset returns and (ii) volatility clustering, i.e., the slow decay of auto- correlations of absolute returns. We propose a model for the aggregate dynamics of the market which is generated by the coupling of a ‘slow' and a ‘fast' dynamical component, where the ‘fast' component can be seen as a perturbation of the ‘slow' one. Statistical properties of price changes in this model are estimated by simulation; sample size is 4× 106. It is shown that increasing the decoupling of these two dynamical levels generates a crossover in the distribution of log returns from a concave Gaussian-like distribution to a convex, truncated Levy-like one. For a sufficiently large degree of dynamic decoupling, the return trails exhibit pronounced volatility clustering

Abstract

Prices are macro-observables of a financial market that result from the trading actions of a huge number of individual investors. Major stylized facts of empirical asset returns concern (i) non-Gaussian distribution of empirical asset returns and (ii) volatility clustering, i.e., the slow decay of auto- correlations of absolute returns. We propose a model for the aggregate dynamics of the market which is generated by the coupling of a ‘slow' and a ‘fast' dynamical component, where the ‘fast' component can be seen as a perturbation of the ‘slow' one. Statistical properties of price changes in this model are estimated by simulation; sample size is 4× 106. It is shown that increasing the decoupling of these two dynamical levels generates a crossover in the distribution of log returns from a concave Gaussian-like distribution to a convex, truncated Levy-like one. For a sufficiently large degree of dynamic decoupling, the return trails exhibit pronounced volatility clustering

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:National licences > 142-005
Dewey Decimal Classification:Unspecified
Scopus Subject Areas:Social Sciences & Humanities > Economics, Econometrics and Finance (miscellaneous)
Physical Sciences > Computer Science Applications
Language:English
Date:8 April 2007
Deposited On:17 Dec 2018 17:20
Last Modified:31 Jul 2020 02:45
Publisher:Springer
ISSN:0927-7099
OA Status:Green
Publisher DOI:https://doi.org/10.1007/s10614-006-9065-z
Related URLs:https://www.swissbib.ch/Search/Results?lookfor=nationallicencespringer101007s106140069065z (Library Catalogue)

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