Related papers: Endogenous Representation of Asset Returns
A simple quantitative example of a reflexive feedback process and the resulting price dynamics after an exogenous price shock to a financial network is presented. Furthermore, an outline of a theory that connects financial reflexivity,…
One of the most important features of capital markets as an adaptive complex networks is their collective behavior. In this paper, we have analyzed the banking sectors of 4 world stock markets,which composed of emerging and matures ones. By…
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent…
In contrast to problems of interference in (exogenous) treatments, models of interference in unit-specific (endogenous) outcomes do not usually produce a reduced-form representation where outcomes depend on other units' treatment status…
This paper investigates how two important sources of risk -- market tail risk and extreme market volatility risk -- are priced into the cross-section of asset returns across various investment horizons. To identify such risks, we propose a…
Macroscopic properties of equity markets affect the performance of active equity strategies but many are not adequately captured by conventional models of financial mathematics and econometrics. Using the CRSP Database of the US equity…
In recent years networks have gained unprecedented attention in studying a broad range of topics, among them in complex systems research. In particular, multi-agent systems have seen an increased recognition of the importance of the…
Artificial stock market simulation based on agent is an important means to study financial market. Based on the assumption that the investors are composed of a main fund, small trend and contrarian investors characterized by four…
Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…
We develop a framework for stochastic portfolio theory (SPT), which incorporates modern nonlinear price impact and impact decay models. Our main result is the derivation of the celebrated master formula for additive functional generation of…
Systematic and multifactor risk models are revisited via methods which were already successfully developed in signal processing and in automatic control. The results, which bypass the usual criticisms on those risk modeling, are illustrated…
The idiosyncratic (microscopic) and systemic (macroscopic) components of market structure have been shown to be responsible for the departure of the optimal mean-variance allocation from the heuristic `equally-weighted' portfolio. In this…
Consider an equity market with $n$ stocks. The vector of proportions of the total market capitalizations that belong to each stock is called the market weight. The market weight defines the market portfolio which is a buy-and-hold portfolio…
An algorithm was recently introduced by INTECH for the purposes of estimating the trading-profit contribution of systematic rebalancing to the relative return of rules-based investment strategies. We apply this methodology to analyze the…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
We consider models of financial markets in which all parties involved find incentives to participate. Strategies are evaluated directly by their virtual wealths. By tuning the price sensitivity and market impact, a phase diagram with…
We study a mean-field version of rank-based models of equity markets such as the Atlas model introduced by Fernholz in the framework of Stochastic Portfolio Theory. We obtain an asymptotic description of the market when the number of…
In nature and human societies, the effects of homogeneous and heterogeneous characteristics on the evolution of collective behaviors are quite different from each other. It is of great importance to understand the underlying mechanisms of…
This paper considers the mean-reverting portfolio design problem arising from statistical arbitrage in the financial markets. We first propose a general problem formulation aimed at finding a portfolio of underlying component assets by…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…