Related papers: Ponzi Funds
We propose a reduced form set of two coupled continuous time equations linking the price of a representative asset and the price of a bond, the later quantifying the cost of borrowing. The feedbacks between asset prices and bonds are…
Measuring beliefs about natural disasters is challenging. Deep out-of-the-money options allow investors to hedge at a range of strikes and time horizons, thus the 3-dimensional surface of firm-level option prices provides information on (i)…
Alpha factor mining aims to discover investment signals from the historical financial market data, which can be used to predict asset returns and gain excess profits. Powerful deep learning methods for alpha factor mining lack…
This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist-fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
We empirically examine the intraday return- and volatility-forecasting power of on-chain flow data for Bitcoin(BTC), Ethereum(ETH), and Tether(USDT). We find ETH net inflows to strongly predict ETH returns and volatility in the 2017-2023…
We study the interaction between returns and order flow imbalances in the S&P 500 E-mini futures market using a structural VAR model identified through heteroskedasticity. The model is estimated at one-second frequency for each 15-minute…
Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…
Addressing the ongoing examination of high-frequency trading practices in financial markets, we report the results of an extensive empirical study estimating the maximum possible profitability of the most aggressive such practices, and…
For this special issue, the article aims at discussing a few econophysics problems studied so far rather successfully. The following "applications" in micro-econo-physics are considered : (i) financial crashes; it is emphasized that one can…
This paper investigates the so-called leakage effect of trading strategies generated functionally from rank-dependent portfolio generating functions. This effect measures the loss in wealth of trading strategies due to renewing the…
We study asset price bubbles in market models with proportional transaction costs $\lambda\in (0,1)$ and finite time horizon $T$ in the setting of [49]. By following [28], we define the fundamental value $F$ of a risky asset $S$ as the…
This paper proposes a simple and parsimonious discrete-time simulation model to describe the endogenous formation and periodic collapse of financial bubbles. While existing literature has extensively explored the statistical properties of…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical…
We develop a theoretical framework for understanding how cognitive load affects information processing in financial markets and test it using exogenous variation in disclosure complexity. Our model distinguishes between attention allocation…
Recent literature seek to forecast implied volatility derived from equity, index, foreign exchange, and interest rate options using latent factor and parametric frameworks. Motivated by increased public attention borne out of the…
Index funds are substantially preferred by investors nowadays, and market sensitivities are instrumental in managing index funds. An index fund is a mutual fund aiming to track the returns of a predefined market index (e.g., the S&P 500). A…
A deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate…
We consider an illiquid financial market where a risk averse investor has to liquidate a portfolio within a finite time horizon [0,T] and can trade continuously at a traditional exchange (the "primary venue") and in a dark pool. At the…
Using intraday data for the cross-section of individual stocks, we show that both transitory and persistent fluctuations in realized market and average idiosyncratic volatility, skewness and kurtosis are differentially priced in the…