Realized Volatility Analysis in A Spin Model of Financial Markets

TL;DR

This paper demonstrates that the spin model of financial markets produces return dynamics consistent with the mixture-of-distribution hypothesis, validated through realized volatility analysis and standardized returns.

Contribution

It provides the first evidence linking the spin model's return dynamics with real market behavior via realized volatility analysis.

Findings

Standardized returns match normal distribution moments

Return dynamics align with mixture-of-distribution hypothesis

First validation of spin model's realism in financial markets

Abstract

We calculate the realized volatility in the spin model of financial markets and examine the returns standardized by the realized volatility. We find that moments of the standardized returns agree with the theoretical values of standard normal variables. This is the first evidence that the return dynamics of the spin financial market is consistent with the view of the mixture-of-distribution hypothesis that also holds in the real financial markets.