communication: The Drift Burst Hypothesis
speaker: Kim Christensenspeaker: Roberto Renò
abstract: The usual tenet that volatility dominates over the drift over short time intervals is not necessarily true when the drift term is locally explosive. The Drift Burst Hypothesis postulates the existence of such locally explosive drifts in the price dynamics. After describing the mathematical setting, embedded in the paradigm of traditional continuoustime finance, we introduce a nonparametric test for the presence of drift bursts. We propose a simple data generating process which is able to generate drift bursts endogenously, due to the presence of feedback traders. The empirical analysis shows that drift burst can usually be associated to “flash crashes”, and their occurrence rate is significantly large, and that drift bursts can be associated to higher volume, higher volatility and lower price impact.
timetable:
Thu 28 Jan, 15:00 - 17:00, Sala Azzurra
<< Go back