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Asia-Pacific Financial Markets

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20.12.2019 | Original Research

Volatility Flocking by Cucker–Smale Mechanism in Financial Markets

verfasst von: Hyeong-Ohk Bae, Seung-Yeal Ha, Yongsik Kim, Hyuncheul Lim, Jane Yoo

Erschienen in: Asia-Pacific Financial Markets | Ausgabe 3/2020

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Abstract

We analyze empirical evidence of flocking stock volatilities according to the Cucker–Smale (C–S) mechanism. By using daily realized volatilities of stocks listed on Dow Jones Industrial Average from January, 2007 to December, 2009, we calibrate key parameters such as time-varying coupling strength, communication weight and stochastic noise in coupling of a benchmark C–S model in Bae et al. (Math Models Methods Appl Sci 25:1299–1335, 2015). Our numerical solutions show that the flocking mechanism explains average volatility dynamics better than a stochastic volatility model without the mechanism over the sample period. The model’s empirical implications are found from cyclicality of Volatility Flocking Index (VFI), an aggregate measure of differences between volatilities. Results from Granger causality tests after vector autoregression estimation show that VFI helps us predict the implied volatility index, and weighted average return of S&P500 Index.

Vorheriger Artikel Volatility and Specific Risk Toward Family’s Performance in an Emerging Country

Nächster Artikel US Economic Policy Uncertainty and GCC Stock Market

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Some previous studies such as Bellomo (2008), Bellomo et al. (2010a, b, 2013), Bertotti and Delitala (2008, 2010), Galam et al. (1982), Galam and Zucker (2000) and Ha et al. (2012, 2013) have applied this mechanism to collective behavior of human society.

The list of firms is available in the “Appendix A”.

The results are available upon request.

We may compare cyclical movement of the \(VFI_t\) with some macro variables such as interest rates, term spread, credit spread, and monetary aggregates (M1, M2, and M3). VIX and the rate of return of S&P500 show a stock market’s signal in a timely manner relative to production indicators including “Building Permit” and industrial production.

We find that VFI is a stationary process according to results of augmented Dickey–Fuller test. These test results are available upon request.

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Titel: Volatility Flocking by Cucker–Smale Mechanism in Financial Markets
verfasst von: Hyeong-Ohk Bae
Seung-Yeal Ha
Yongsik Kim
Hyuncheul Lim
Jane Yoo
Publikationsdatum: 20.12.2019
Verlag: Springer Japan
Erschienen in: Asia-Pacific Financial Markets / Ausgabe 3/2020
Print ISSN: 1387-2834
Elektronische ISSN: 1573-6946
DOI: https://doi.org/10.1007/s10690-019-09299-9

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