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Common Underlying Dynamics in an Emerging Market: From Minutes to Months

Renato Vicente·Charles M. de Toledo·Vitor B. P. Leite·Nestor Caticha
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Abstract

We analyse a period spanning 35 years of activity in the Sao Paulo Stock Exchange Index (IBOVESPA) and show that the Heston model with stochastic volatility is capable of explaining price fluctuations for time scales ranging from 5 minutes to 100 days with a single set of parameters. We also show that the Heston model is inconsistent with the observed behavior of the volatility autocorrelation function. We deal with the latter inconsistency by introducing a slow time scale to the model. The fact that the price dynamics in a period of 35 years of macroeconomical unrest may be modeled by the same stochastic process is evidence for a general underlying microscopic market dynamics.

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Renato Vicente, Charles M. de Toledo, Vitor B. P. Leite, Nestor Caticha. 2004-02-06. Common Underlying Dynamics in an Emerging Market: From Minutes to Months. https://arxiv.org/abs/cond-mat/0402185

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