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On a universal mechanism for long-range volatility correlations 

Authors: J-P. Bouchaud a;  I. Giardina b; M. Mzard c
Affiliations:   a Service de Physique de l'Eacutetat Condenseacute, Centre d'Eacutetudes de Saclay, Orme des Merisiers, 91191 Gif-sur-Yvette Cedex, France.
b Service de Physique Theacuteorique, Centre d'Eacutetudes de Saclay, Orme des Merisiers, 91191 Gif-sur-Yvette Cedex, France.
c Laboratoire de Physique Theacuteorique et Modegraveles Statistiques, Universiteacute Paris Sud, Bat. 100, 91405 Orsay Cedex, France.
DOI: 10.1088/1469-7688/1/2/302
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 1, Issue 2 February 2001 , pages 212 - 216
Formats available: PDF (English)
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Abstract

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. We show that real market data can be surprisingly well accounted for by these simple models.
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