Related papers: The Rank Effect
The paper analyzes the cryptocurrency ecosystem at both the aggregate and individual levels to understand the factors that impact future volatility. The study uses high-frequency panel data from 2020 to 2022 to examine the relationship…
This paper investigates how realized and option implied volatilities are related to the future quantiles of commodity returns. Whereas realized volatility measures ex-post uncertainty, volatility implied by option prices reveals the…
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…
We provide closed-form market equilibrium formula consolidating informational imperfections and investors beliefs. Based on Merton's model, we characterize the equilibrium expected excess returns vector with incomplete information. We then…
We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use…
We analyze correlations among stock returns via a series of widely adopted parameters which we refer to as explanatory variables. We subsequently exploit the results to propose a long only quantitative adaptive technique to construct a…
Platform giants in China have operated with persistently compressed margins in highly concentrated markets for much of the past decade, despite market shares exceeding 60\% in core segments. Standard theory predicts otherwise: either the…
We study a discrete-time Markov process $X_n\in\mathbb{R}^d$, for which the distribution of the future increments depends only on the relative ranking of its components (descending order by value). We endow the process with a…
This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current values, past values, and…
In this paper, we examine the interlinkages among firms through a financial network where cross-holdings on both equity and debt are allowed. We relate mathematically the correlation among equities with the unconditional correlation of the…
We propose a probabilistic framework for pricing derivatives, which acknowledges that information and beliefs are subjective. Market prices can be translated into implied probabilities. In particular, futures imply returns for these implied…
The composition of natural liquidity has been changing over time. An analysis of intraday volumes for the S&P500 constituent stocks illustrates that (i) volume surprises, i.e., deviations from their respective forecasts, are correlated…
This paper analyzes single-item continuous-review inventory models with random supplies in which the inventory dynamic between orders is described by a diffusion process, and a long-term average cost criterion is used to evaluate decisions.…
This paper studies an equity market of stochastic dimension, where the number of assets fluctuates over time. In such a market, we develop the fundamental theorem of asset pricing, which provides the equivalence of the following statements:…
There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental…
We introduce an auto-regressive model which captures the growing nature of realistic markets. In our model agents do not trade with other agents, they interact indirectly only through a market. Change of their wealth depends, linearly on…
In this article we discuss the distribution of asset price movements by the market potential function. From the principle of free energy minimization we analyze two different kinds of market potentials. We obtain a U-shaped potential when…
By studying all the trades and best bids/asks of ultra high frequency snapshots recorded from the order books of a basket of 10 futures assets, we bring qualitative empirical evidence that the impact of a single trade depends on the…
Cross-sectional dispersion in firm-level realized skewness is significantly and negatively related to future stock market returns. The predictive power of skewness dispersion is robust to in-sample and out-of-sample estimation and is…
This article provides a simple explanation of the asymptotic concavity of the price impact of a meta-order via the microstructural properties of the market. This explanation is made more precise by a model in which the local relationship…