Bank of Spain paper develops model of market volatility


A working paper, published by the Bank of Spain in September, presents a model of market volatility that includes "vast" dimensions and captures stylised facts to produce a more accurate forecast.

Authors Matteo Luciani and David Veredas say such a model has so far been missing from the literature. The paper develops a dynamic factor model based on data from the S&P 100 from 2001–08, finding that volatilities have a ‘long memory', persisting for a greater period after times of financial turmoil

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