Related papers: An Information Filtering approach to stress testin…
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 note discusses some of the aspects of a model for the covariance of equity returns based on a simple "isotropic" structure in which all pairwise correlations are taken to be the same value. The effect of the structure on feasible…
As financial instruments grow in complexity more and more information is neglected by risk optimization practices. This brings down a curtain of opacity on the origination of risk, that has been one of the main culprits in the 2007-2008…
Observations indicate that the distributions of stock returns in financial markets usually do not conform to normal distributions, but rather exhibit characteristics of high peaks, fat tails and biases. In this work, we assume that the…
Financial global crisis has devastating impacts to economies since early XX century and continues to impose increasing collateral damages for governments, enterprises, and society in general. Up to now, all efforts to obtain efficient…
We quantify the amount of information filtered by different hierarchical clustering methods on correlations between stock returns comparing it with the underlying industrial activity structure. Specifically, we apply, for the first time to…
In order to analyze the effect of chaos or order on the rate of decoherence in a subsystem we aim to distinguish effects of the two types of dynamics from those depending on the choice of the wave packet. To isolate the former we introduce…
We develop a forecasting methodology for providing credible forecasts for time series that have recently undergone a shock. We achieve this by borrowing knowledge from other time series that have undergone similar shocks for which…
We present an analytical model to study the role of expectation feedbacks and overlapping portfolios on systemic stability of financial systems. Building on [Corsi et al., 2016], we model a set of financial institutions having Value at Risk…
We address the problem of partial index tracking, replicating a benchmark index using a small number of assets. Accurate tracking with a sparse portfolio is extensively studied as a classic finance problem. However in practice, a tracking…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
Most empirical microstructure research assumes that order flow--return parameters are constant, yet these relationships shift substantially across market regimes. Combining adaptive Kalman filtering, Markov-switching regime identification,…
In this paper a novel approach for a measurement of stresses in a capital, which induce the capital flows between economic systems, is proposed. The proposals appeal to an apparatus offered by the statistical theory of shape. We propose a…
Assessing the resilience of the economy requires accounting for its intrinsic multi-layer nature, by assessing for instance how disruptions at the firm level spread through the production network and propagate to the banking sector. Methods…
We propose a method to learn the nonlinear impulse responses to structural shocks using neural networks, and apply it to uncover the effects of US financial shocks. The results reveal substantial asymmetries with respect to the sign of the…
By incorporating market impact and asymmetric sensitivity into the evolutionary minority game, we study the coevolutionary dynamics of stock prices and investment strategies in financial markets. Both the stock price movement and the…
Index tracking, also known as passive investing, has gained significant traction in financial markets due to its cost-effective and efficient approach to replicating the performance of a specific market index. This review paper provides a…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers…