Multiple Investment Horizons and Stock Price Dynamics

Market prices of risky assets are driven by the actions of economic agents that have different investment horizons: they adjust their portfolios at various frequencies and observe returns at different scales. In this book we examine the problem of multiple investment scales from three different angles. In the first place, we study the theoretical implications of the heterogeneity of investors' decision horizons for price dynamics. This analysis is carried in the frameworks of complete and bounded rationality. Second, different time series models of price volatility are examined in view of their capacity to represent the properties of stock returns simultaneously at various time scales. Finally, a method of measuring volatility at multiple scales with wavelet filters is developed, with application to the detection of financial crises.