Microscopic models for long ranged volatility correlations

We propose a general interpretation for long-range correlation effects in, the activity and volatility of financial markets. This interpretation is ba sed on the fact that the choice between 'active' and 'inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate o ur scenario in the framework of simplified market models, such as the Minor ity Game model with an inactive strategy, or a more sophisticated version t hat includes some price dynamics. We show that real market data can be surp risingly well accounted for by these simple models. (C) 2001 Elsevier Scien ce B.V. All rights reserved.