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Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
Systematically biased forecasts are typically interpreted as evidence of forecasters' irrationality and/or asymmetric loss. In this paper we propose an alternative explanation: when forecasts inform policy decisions, and the resulting…
Decisions in organizations are about evaluating alternatives and choosing the one that would best serve organizational goals. To the extent that the evaluation of alternatives could be formulated as a predictive task with appropriate…
I introduce a survey of economic expectations formed by querying a large language model (LLM)'s expectations of various financial and macroeconomic variables based on a sample of news articles from the Wall Street Journal between 1984 and…
We consider hundreds of thousands of individual economic transactions to ask: how predictable are consumers in their merchant visitation patterns? Our results suggest that, in the long-run, much of our seemingly elective activity is…
On a periodic basis, publicly traded companies are required to report fundamentals: financial data such as revenue, operating income, debt, among others. These data points provide some insight into the financial health of a company.…
Portfolio optimization approaches inevitably rely on multivariate modeling of markets and the economy. In this paper, we address three sources of error related to the modeling of these complex systems: 1. oversimplifying hypothesis; 2.…
Confidence is an essential ingredient of success in a wide range of domains ranging from job performance and mental health, to sports, business, and combat. Some authors have suggested that not just confidence but overconfidence-believing…
People in the real world often possess vague knowledge of future payoffs, for which quantification is not feasible or desirable. We argue that language, with differing ability to convey vague information, plays an important but less-known…
Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time.…
In the present paper a model of a market consisting of real and financial interacting sectors is studied. Agents populating the stock market are assumed to be not able to observe the true underlying fundamental, and their beliefs are biased…
Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…
Global change is reshaping ecosystems and societies. Strategic choices that were best yesterday may be sub-optimal tomorrow; and environmental conditions that were once taken for granted may soon cease to exist. In this setting, how people…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
We demonstrate that the forecasting combination puzzle is a consequence of the methodology commonly used to produce forecast combinations. By the combination puzzle, we refer to the empirical finding that predictions formed by combining…
Financial institutions and insurance companies that analyze the evolution and sources of profits and losses often look at risk factors only at discrete reporting dates, ignoring the detailed paths. Continuous-time decompositions avoid this…
Cryptocurrencies fluctuate in markets with high price volatility, posing significant challenges for investors. To aid in informed decision-making, systems predicting cryptocurrency market movements have been developed, typically focusing on…
This paper investigates whether large language models (LLMs) can generate reliable stock market predictions. We evaluate four state-of-the-art models - ChatGPT, Gemini, DeepSeek, and Perplexity - across three prompting strategies: a naive…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…