Statistical Finance
In this paper we test for the sensitive dependence on initial conditions (the so called "butterfly effect") of energy futures time series (heating oil, natural gas), and thus the determinism of those series. This paper is distinguished from…
We address the information content of European option prices about volatility in terms of the Fisher information matrix. We assume that observed option prices are centred on the theoretical price provided by Heston's model disturbed by…
This study examines the adaptive market hypothesis (AMH) in Japanese stock markets (TOPIX and TSE2). In particular, we measure the degree of market efficiency by using a time-varying model approach. The empirical results show that (1) the…
A non-Bayesian time-varying model is developed by introducing the concept of the degree of market efficiency that varies over time. This model may be seen as a reflection of the idea that continuous technological progress alters the trading…
A time-varying cointegration model for foreign exchange rates is presented. Unlike previous studies, we allow the loading matrix in the vector error correction (VEC) model to be varying over time. Because the loading matrix in the VEC model…
We use a continuous-time random walk (CTRW) to model market fluctuation data from times when traders experience excessive losses or excessive profits. We analytically derive "superstatistics" that accurately model empirical market activity…
Invertibility conditions for observation-driven time series models often fail to be guaranteed in empirical applications. As a result, the asymptotic theory of maximum likelihood and quasi-maximum likelihood estimators may be compromised.…
Taylor's law of temporal fluctuation scaling, variance $\sim$ $a($mean$)^b$, is ubiquitous in natural and social sciences. We report for the first time convincing evidence of a solid temporal fluctuation scaling law in stock illiquidity by…
This paper considers mean-variance optimization under uncertainty, specifically when one desires a sparsified set of optimal portfolio weights. From the standpoint of a Bayesian investor, our approach produces a small portfolio from many…
Being able to forcast extreme volatility is a central issue in financial risk management. We present a large volatility predicting method based on the distribution of recurrence intervals between volatilities exceeding a certain threshold…
This study analyses the duration dependence of events that trigger volatility persistence in stock markets. Such events, in our context, are monthly spells of contiguous price decline or negative returns for the S&P500 stock market index…
The multivariate version of the Mixed Tempered Stable is proposed. It is a generalization of the Normal Variance Mean Mixtures. Characteristics of this new distribution and its capacity in fitting tails and capturing dependence structure…
There are non-vanishing price responses across different stocks in correlated financial markets. We further study this issue by performing different averages, which identify active and passive cross-responses. The two average…
We analyze the stock prices of the S&P market from 1987 until 2012 with the covariance matrix of the firm returns determined in time windows of several years. The eigenvector belonging to the leading eigenvalue (market) exhibits in its long…
We investigate the relative information efficiency of financial markets by measuring the entropy of the time series of high frequency data. Our tool to measure efficiency is the Shannon entropy, applied to 2-symbol and 3-symbol…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
We have presented a novel technique of detecting intermittencies in a financial time series of the foreign exchange rate data of U.S.- Euro dollar(US/EUR) using a combination of both statistical and spectral techniques. This has been…
Econophysics, is based on the premise that some ideas and methods from physics can be applied to economic situations. We intend to show in this paper how a physics concept such as entropy can be applied to an economic problem. In so doing,…
There are many studies dealing with the analysis of similarity among currencies in foreign exchange market by using network analysis approach. In those studies, each currency is represented by a univariate time series of exchange rate…
This paper examines quantile dependence between international stock markets and evaluates its use for improving volatility forecasting. First, we analyze quantile dependence and directional predictability between the US stock market and…