Related papers: How does stock market volatility react to oil shoc…
Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from…
The imbalance of buying and selling functions profoundly in the formation of market trends, however, a fine-granularity investigation of the imbalance is still missing. This paper investigates a unique transaction dataset that enables us to…
We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (gold, oil, and stocks) covering the period from 1987 to 2012. The analysis is performed on both intra-day and…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
We study a variant of the Cont-Bouchaud model which utilizes the perco lation approach of multi-agent simulations of the stock market fluctuations. Here, instead of considering the relative price change as the difference of the total demand…
We extend a linear version of the liquidity risk model of Cetin et al. (2004) to allow for price impacts. We show that the impact of a market order on prices depends on the size of the transaction and the level of liquidity. We obtain a…
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…
Assuming that price of the underlying stock is moving in range bound, the Black-Scholes formula for options pricing supports a separation of variables. The resulting time-independent equation is solved employing different behavior of the…
We identify the structural impulse responses of quantiles of the outcome variable to a shock. Our estimation strategy explicitly distinguishes treatment from control variables, allowing us to model responses of unconditional quantiles while…
We study how the phenomenon of contagion can take place in the network of the world's stock exchanges due to the behavioral trait "blindeness to small changes". On large scale individual, the delay in the collective response may…
In April 2009, we introduced a model representing the evolution of motor fuel price (a subcategory of the consumer price index of transportation) relative to the overall CPI as a linear function of time. Under our framework, all price…
In this paper, we investigate the effect of the U.S.--China trade war on stock markets from a financial contagion perspective, based on high-frequency financial data. Specifically, to account for risk contagion between the U.S. and China…
We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly…
We propose a novel framework for modeling time-varying persistence in economic time series, allowing for smoothly evolving heterogeneity in shock dynamics. We leverage localized regression techniques to flexibly identify changes in…
We show that the frequent claim that the implied tree prices exotic options consistently with the market is untrue if the local volatilities are subject to change and the market is arbitrage-free. In the process, we analyse -- in the most…
The use of kinetic modelling based on partial differential equations for the dynamics of stock price formation in financial markets is briefly reviewed. The importance of behavioral aspects in market booms and crashes and the role of…
Recent studies show that a negative shock in stock prices will generate more volatility than a positive shock of similar magnitude. The aim of this paper is to appraise the hypothesis under which the conditional mean and the conditional…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
High frequency data in finance have led to a deeper understanding on probability distributions of market prices. Several facts seem to be well stablished by empirical evidence. Specifically, probability distributions have the following…
In this paper, we address one of the main puzzles in finance observed in the stock market by proponents of behavioral finance: the stock predictability puzzle. We offer a statistical model within the context of rational finance which can be…