Dynamics of Financial Time Series in an Inhomogeneous Aggregation Framework

Abstract

In this paper we provide a microeconomic model to investigate the long term memory of financial time series of one share. In the framework we propose, each trader selects a volume of shares to trade and a strategy. Strategies differ for the proportion of fundamentalist/chartist evaluation of price. The share price is determined by the aggregate price. The analyses of volume distribution give an insight of imitative structure among traders. The main property of this model is the functional relation between its parameters at the micro and macro level. This allows an immediate calibration of the model to the long memory degree of the time series under examination, therefore opening the way to understanding the emergence of stylized facts of the market through opinion aggregation.