Related papers: Lost in Diversification
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
We study the relationship between firms' performance and their technological portfolios using tools borrowed from the complexity science. In particular, we ask whether the accumulation of knowledge and capabilities related to a coherent set…
This paper consists of two parts. In the first part, we develop a new information theory, in which it is not a coincidence that information and physical entropy share the same mathematical formula. It is an adaptation of mind to help search…
We use Fourier analysis to access risk in financial products. With it we analyze price changes of e.g. stocks. Via Fourier analysis we scrutinize quantitatively whether the frequency of change is higher than a change in (conserved) company…
When assets are correlated, benefits of investment diversification are reduced. To measure the influence of correlations on investment performance, a new quantity - the effective portfolio size - is proposed and investigated in both…
Recent work~\cite{Liu2016} has shown that dependencies between items in a dataset can lead to privacy leaks. We extend this concept to privacy-preserving transformations, considering a broader set of dependencies captured by correlation…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that…
The financial markets are understood as complex dynamical systems whose dynamics is analysed mostly using nonstationary and brief data sets that usually come from stock markets. For such data sets, a reliable method of analysis is based on…
In a technical treatment, this article establishes the necessity of transparent privacy for drawing unbiased statistical inference for a wide range of scientific questions. Transparency is a distinct feature enjoyed by differential privacy:…
This paper introduces a comprehensive framework for Financial Information Theory by applying information-theoretic concepts such as entropy, Kullback-Leibler divergence, mutual information, normalized mutual information, and transfer…
Numerical analysts might be expected to pay close attention to a branch of complexity theory called information-based complexity theory (IBCT), which produces an abundance of impressive results about the quest for approximate solutions to…
In this paper, we propose a general bi-objective model for portfolio selection, aiming to maximize both a diversification measure and the portfolio expected return. Within this general framework, we focus on maximizing a diversification…
Recent work has emphasized the diversification benefits of combining trend signals across multiple horizons, with the medium-term window-typically six months to one year-long viewed as the "sweet spot" of trend-following. This paper…
Financial markets convert the incremental arrival of information into asset price changes. In a sandpile model grains of sand represent bits of data, and the size of an avalanche, governed by a scaling law, is linked to price volatility.…
The information investors acquire in asset markets has various forms. We refer to range information as information about the upper and lower bound which the payoff of an asset may reach in the future. This paper explores the market impacts…
We examine how uncertain veracity of external news influences investor beliefs, market prices and corporate disclosures. Despite assuming independence between the news' veracity and the firm's endowment with private information, we find…
We study the role of information complexity in privacy leakage about an attribute of an adversary's interest, which is not known a priori to the system designer. Considering the supervised representation learning setup and using neural…
Risk-only investment strategies have been growing in popularity as traditional in- vestment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First,…
By employing the technique of enlargement of filtrations, we demonstrate how to incorporate information about the future trend of the stochastic interest rate process into a financial model. By modeling the interest rate as an affine…