Volume 88, Number 2, October 2009
|Number of page(s)||6|
|Section||Interdisciplinary Physics and Related Areas of Science and Technology|
|Published online||28 October 2009|
On return-volatility correlation in financial dynamics
Zhejiang University, Zhejiang Institute of Modern Physics - Hangzhou 310027, PRC
Corresponding author: firstname.lastname@example.org
Accepted: 30 September 2009
With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the return-volatility correlation of the time series, while other characteristics, such as the probability distribution of returns and long-range time correlation of volatilities etc., remain essentially unchanged. This suggests that the leverage effect or anti-leverage effect in financial markets arises from a kind of feedback return-volatility interactions, rather than the long-range time correlation of volatilities and asymmetric probability distribution of returns. Further, we show that large volatilities dominate the return-volatility correlation in financial dynamics.
PACS: 89.65.Gh – Economics; econophysics, financial markets, business and management / 89.75.-k – Complex systems
© EPLA, 2009
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