Related papers: Leverage Bubble
Our analysis of financial data, in terms of super-exponential growth, suggests that the seed of the 2002/03 crisis of the Dutch supermarket giant AHOLD was planted in 1996. It became quite visible in 1999 when the post-bubble…
We propose a straightforward extension of our previously proposed log-periodic power law model of the ``anti-bubble'' regime of the USA market since the summer of 2000, in terms of the renormalization group framework to model critical…
A leveraged ETF is a fund aimed at achieving a rate of return several times greater than that of the underlying asset such as Nikkei 225 futures. Recently, it has been suggested that rebalancing trades of a leveraged ETF may destabilize the…
We study the disequilibrium dynamics of a stylised model of production networks in which firms use perishable and non-substitutable intermediate inputs, so that adverse idiosyncratic productivity shocks can trigger downstream shortages and…
We investigate the volatility return intervals in the NYSE and FOREX markets. We explain previous empirical findings using a model based on the interacting agent hypothesis instead of the widely-used efficient market hypothesis. We derive…
Financial and economic history is strewn with bubbles and crashes, booms and busts, crises and upheavals of all sorts. Understanding the origin of these events is arguably one of the most important problems in economic theory. In this…
We present a stochastic volatility market model where volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. With this model we exactly measure the leverage effect and other stylized facts, such as mean…
In this paper we demonstrate a striking regularity in the way people place limit orders in financial markets, using a data set consisting of roughly seven million orders from the London Stock Exchange. We define the relative limit price as…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
We consider the problem of governing systemic risk in an assets-liabilities dynamical model of banking system. In the model considered each bank is represented by its assets and its liabilities.The capital reserves of a bank are the…
We study precursors to the global market crash that occurred on all main stock exchanges throughout the world in October 2008 about three weeks after the bankruptcy of Lehman Brothers Holdings Inc. on 15 September. We examine the collective…
The LLS stock market model is a model of heterogeneous quasi-rational investors operating in a complex environment about which they have incomplete information. We review the main features of this model and several of its extensions. We…
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…
Urban housing markets, along with markets of other assets, universally exhibit periods of strong price increases followed by sharp corrections. The mechanisms generating such non-linearities are not yet well understood. We develop an…
We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask…
Explanations of the replication crisis often emphasize misconduct, questionable research practices, or incentive misalignment, implying that behavioral reform is sufficient. This paper argues that a substantial component is architectural:…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the…
The manipulation of LIBOR by a group of banks became one of the major blows to the remaining confidence in financial industry. Yet, despite an enormous amount of popular literature on the subject, rigorous time-series studies are few. In my…
Financial time series exhibit two different type of non linear correlations: (i) volatility autocorrelations that have a very long range memory, on the order of years, and (ii) asymmetric return-volatility (or `leverage') correlations that…
We propose that large stock market crashes are analogous to critical points studied in statistical physics with log-periodic correction to scaling. We extend our previous renormalization group model of stock market prices prior to and after…