Related papers: Characteristics-driven returns in equilibrium
We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete-choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved…
This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent, rendering standard approaches…
The key idea of this model is that firms are the result of an evolutionary process. Based on demand and supply considerations the evolutionary model presented here derives explicitly Gibrat's law of proportionate effects as the result of…
We propose a general non-linear order book model that is built from the individual behaviours of the agents. Our framework encompasses Markovian and Hawkes based models. Under mild assumptions, we prove original results on the ergodicity…
In a model with no given probability measure, we consider asset pricing in the presence of frictions and other imperfections and characterize the property of coherent pricing, a notion related to (but much weaker than) the no arbitrage…
We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition…
We propose an artificial market model based on deterministic agents. The agents modify their ask/bid price depending on past price changes. The temporal development of market price fluctuations is calculated numerically. A probability…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
Trading a financial instrument pushes its price and those of other assets, a phenomenon known as cross-impact. To be of use, cross-impact models must fit data and be well-behaved so they can be applied in applications such as optimal…
Starting from the characterization of the past time evolution of market prices in terms of two fundamental indicators, price velocity and price acceleration, we construct a general classification of the possible patterns characterizing the…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
We discuss the finding that cross-sectional characteristic based models have yielded portfolios with higher excess monthly returns but lower risk than their arbitrage pricing theory counterparts in an analysis of equity returns of stocks…
Deep learning searches for nonlinear factors for predicting asset returns. Predictability is achieved via multiple layers of composite factors as opposed to additive ones. Viewed in this way, asset pricing studies can be revisited using…
We address microscopic, agent based, and macroscopic, stochastic, modeling of the financial markets combining it with the exogenous noise. The interplay between the endogenous dynamics of agents and the exogenous noise is the primary…
Automation raises productivity and reduces paid human labor, but it also reallocates income and ownership claims. This paper studies that tradeoff in a static benchmark and in a stationary heterogeneous-agent general equilibrium. Firms…
This work suggests modifications to a previously introduced class of heterogeneous agent models that allow for the inclusion of different types of agent motivations and behaviours in a unified way. The agents operate within a highly…
Analytical understanding of how low-dimensional latent features reveal themselves in large-dimensional data is still lacking. We study this by defining a linear latent feature model with additive noise constructed from probabilistic…
Financial economic models often assume that investors know (or agree on) the fundamental value of the shares of the firm, easing the passage from the individual to the collective dimension of the financial system generated by the Share…
We study factor models that combine latent factors with firm characteristics and propose a new framework for modeling, estimating, and inferring pricing errors. Following Zhang (2024), our approach decomposes mispricing into two distinct…
The methodology presented provides a quantitative way to characterize investor behavior and price dynamics within a particular asset class and time period. The methodology is applied to a data set consisting of over 250,000 data points of…