Leverage effect in financial markets: The retarded volatility model - art.no. 228701

Citation
Jp. Bouchaud et al., Leverage effect in financial markets: The retarded volatility model - art.no. 228701, PHYS REV L, 8722(22), 2001, pp. 8701
Citations number
21
Language
INGLESE
art.tipo
Article
Categorie Soggetti
Physics
Journal title
PHYSICAL REVIEW LETTERS
ISSN journal
0031-9007 → ACNP
Volume
8722
Issue
22
Year of publication
2001
Database
ISI
SICI code
0031-9007(20011126)8722:22<8701:LEIFMT>2.0.ZU;2-D
Abstract
We investigate quantitatively the so-called "leverage effect," which corres ponds to a negative correlation between past returns and future volatility. For individual stocks this correlation is moderate and decays over 50 days , while for stock indices it is much stronger but decays faster. For indivi dual stocks the magnitude of this correlation has a universal value that ca n be rationalized in terms of a new "retarded" model which interpolates bet ween a purely additive and a purely multiplicative stochastic process. For stock indices a specific amplification phenomenon seems to be necessary to account for the observed amplitude of the effect.