Volatility Cluster and Herding

Details Volatility Cluster and Herding Volatility Cluster and Herding

2002-07-11

arxiv.org/abs/cond-mat/0207280v1

Physics

Condensed Matter

Statistical Mechanics

15 pages TeX, 6 figures PostScript

Scientific paper

10.1016/S0378-4371(02)01810-1

Stock markets can be characterized by fat tails in the volatility distribution, clustering of volatilities and slow decay of their time correlations. For an explanation models with several mechanisms and consequently many parameters as the Lux-Marchesi model have been used. We show that a simple herding model with only four parameters leads to a quantitative description of the data. As a new type of data we describe the volatility cluster by the waiting time distribution, which can be used successfully to distinguish between different models.

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