Related papers: Does the leverage effect affect the return distrib…
In this short note, we will show how to optimize the portfolio of a large trader whose hedging strategy affects the price of his assets.
Lead-lag relationships among assets represent a useful tool for analyzing high frequency financial data. However, research on these relationships predominantly focuses on correlation analyses for the dynamics of stock prices, spots and…
Lead/lag relationships are an important stylized fact at high frequency. Some assets follow the path of others with a small time lag. We provide indicators to measure this phenomenon using tick-by-tick data. Strongly asymmetric…
In this study, we investigate the statistical properties of the returns and the trading volume. We show a typical example of power-law distributions of the return and of the trading volume. Next, we propose an interacting agent model of…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most…
Faced with uncertainty in decision making, individuals often turn to their social networks to inform their decisions. In consequence, these networks become central to how new products and behaviors spread. A key structural feature of…
In modern portfolio theory, the balancing of expected returns on investments against uncertainties in those returns is aided by the use of utility functions. The Kelly criterion offers another approach, rooted in information theory, that…
We model leverage as stochastic but independent of return shocks and of volatility and perform likelihood-based inference via the recently developed iterated filtering algorithm using S&P500 data, contributing new evidence to the still slim…
Collider bias occurs when conditioning on a common effect (collider) of two variables $X, Y$. In this manuscript, we quantify the collider bias in the estimated association between exposure $X$ and outcome $Y$ induced by selecting on one…
We study the time dependent cross correlations of stock returns, i.e. we measure the correlation as the function of the time shift between pairs of stock return time series using tick-by-tick data. We find a weak but significant effect…
Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
We construct a model of wealth distribution, based on an interactive multiplicative stochastic process on static complex networks. Through numerical simulations we show that a decrease in the number of links discourages equality in wealth…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…
It is common knowledge that leverage can increase the potential returns of an investment, at the expense of increased risk. For a passive investor in the stock market, leverage can be achieved using margin debt or leveraged-ETFs. We perform…
A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of…
The scale and terms of aggregate borrowing in an economy depend on the manner in which wealth is distributed across potential creditors with heterogeneous beliefs about the future. This distribution evolves over time as uncertainty is…
Stock correlations is crucial to asset pricing, investor decision-making, and financial risk regulations. However, microscopic explanation based on agent-based modeling is still lacking. We here propose a model derived from minority game…