A Knowledge - Induced Measure of Financial Volatility - Theoretical Exploration

Abstract

A theoretical measure of financial volatility in connection with real economic variables is formulated in view of the extensively interactive, integrative and dynamic circular causation(evolutionary) interrelationships (also referred to as !IE) between economic variables and policies. The perspective of long-term sustainability of the financial and real economic linkages as po itive and normative issues of globalization is reflected in this measure of volatility. The interactive, integrative and dynamic circular causation mea ns the recursive feedback and evolution that continue on in the imulated model involving the normative and po itive variables underlying the formu la tio n of the measure of financial volatility. The IIE methodology in the financial volatility model ha s important implications for the ARCH model. This i discu sed and formulated.