Related papers: Tick size and price diffusion
We propose a minimal theory of non-linear price impact based on a linear (latent) order book approximation, inspired by diffusion-reaction models and general arguments. Our framework allows one to compute the average price trajectory in the…
Detection of power-law behavior and studies of scaling exponents uncover the characteristics of complexity in many real world phenomena. The complexity of financial markets has always presented challenging issues and provided interesting…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
In this paper we perform a statistical analysis over the returns and relative prices of the CAC $40$ and the S\&P $500$ with the purpose of analyzing the intra-day seasonalities of single and cross-sectional stock dynamics. In order to do…
We present a simple microstructure model of financial returns that combines (i) the well-known ARFIMA process applied to tick-by-tick returns, (ii) the bid-ask bounce effect, (iii) the fat tail structure of the distribution of returns and…
Market Microstructure is the investigation of the process and protocols that govern the exchange of assets with the objective of reducing frictions that can impede the transfer. In financial markets, where there is an abundance of recorded…
We present a novel microscopic stock market model consisting of a large number of random agents modeling traders in a market. Each agent is characterized by a set of parameters that serve to make iterated predictions of two successive…
Modeling the impact of the order flow on asset prices is of primary importance to understand the behavior of financial markets. Part I of this paper reported the remarkable improvements in the description of the price dynamics which can be…
We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity $g$) as a proxy for liquidity. This leads to…
A main focus in economics research is understanding the time series of prices of goods and assets. While statistical models using only the properties of the time series itself have been successful in many aspects, we expect to gain a better…
Traders in a stock market exchange stock shares and form a stock trading network. Trades at different positions of the stock trading network may contain different information. We construct stock trading networks based on the limit order…
Phenomena as diverse as breeding bird populations, the size of U.S. firms, money invested in mutual funds, the GDP of individual countries and the scientific output of universities all show unusual but remarkably similar growth…
Understanding the statistical properties of recurrence intervals of extreme events is crucial to risk assessment and management of complex systems. The probability distributions and correlations of recurrence intervals for many systems have…
We present a phenomenological study of stock price fluctuations of individual companies. We systematically analyze two different databases covering securities from the three major US stock markets: (a) the New York Stock Exchange, (b) the…
Empirical evidence suggests that there is little to no correlation between the rate of inflation and the size of price change. Economists have hitherto taken this to mean that monetary shocks do not generate much deviation in relative…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
The minimum spanning tree is used to study the process of market integration for a large group of national stock market indices. We show how the asset tree evolves over time and describe the dynamics of its normalized length, mean…
Consumers can acquire information through their own search efforts or through their social network. Information diffusion via word-of-mouth communication leads to some consumers free-riding on their "friends" and less information…
We propose a series of simple models for the microstructure of a double auction market without intermediaries. We specialize to those markets, such interdealer broker markets, which are dominated by professional traders, who trade mainly…
The consequences of discretization on the resulting viscosity for the necklace model are analyzed to find out the mechanisms by which this model leads to results different from what could be anticipated. In order to accomplish this, various…