Financial Market Risk

4 Persistence of financial risk

 

 

 

 

4.1 Introduction

In this chapter we focus on the issue of serial and global, or short-term and long-term, temporal dependence among asset returns, irrespective of the stable marginal frequency distributions discussed in Chapter 3.

For example, speculative market returns (and other financial and economic time series) tend to be characterized by the presence of aperiodic cycles of all conceivable “periods” of uncertain length - short, medium and long - where “long” means comparable up the length of the total available data set, and where the distinction between “long cycles” and “trends” is very fuzzy (Mandelbrot, 1972). Consider, for example, the business cycles in the United States which used to have, more ...