Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 387, Issue 15, Pages 3826-3830Publisher
ELSEVIER
DOI: 10.1016/j.physa.2008.01.046
Keywords
long memory; volatility clustering; ARCH type models; nonlinear dynamics; entropy
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Long memory and volatility clustering are two stylized facts frequently related to financial markets. Traditionally, these phenomena have been studied based on conditionally heteroscedastic models like ARCH, GARCH, IGARCH and FIGARCH, inter alia. One advantage of these models is their ability to capture nonlinear dynamics. Another interesting manner to study the volatility phenomenon is by using measures based on the concept of entropy. In this paper we investigate the long memory and volatility clustering for the SP 500, NASDAQ 100 and Stoxx 50 indexes in order to compare the US and European Markets. Additionally, we compare the results from conditionally heteroscedastic models with those from the entropy measures. In the latter, we examine Shannon entropy, Renyi entropy and Tsallis entropy. The results corroborate the previous evidence of nonlinear dynamics in the time series considered. (C) 2008 Elsevier B.V. All rights reserved.
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