Related papers: Understanding the Excess Bond Premium
Inference over tails is usually performed by fitting an appropriate limiting distribution over observations that exceed a fixed threshold. However, the choice of such threshold is critical and can affect the inferential results. Extreme…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
This paper quantifies the effects of equity tail risk on the US government bond market. We estimate equity tail risk with option-implied stock market volatility that stems from large negative price jumps, and we assess its value in…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
In this paper, we revisit the equity premium puzzle reported in 1985 by Mehra and Prescott. We show that the large equity premium that they report can be explained by choosing a more appropriate distribution for the return data. We…
We investigate the use of the normalized imbalance between option volumes corresponding to positive and negative market views, as a predictor for directional price movements in the spot market. Via a nonlinear analysis, and using a…
Real-time probability forecasts for binary outcomes are routine in sports, online experimentation, medicine, and finance. Retrospective narratives, however, often hinge on pathwise extremes: for example, a forecast that becomes "90%…
We propose a novel mathematical model for the activity of microbloggers during an external, event-driven spike. The model leads to a testable prediction of who would become most active if a spike were to take place. This type of information…
In bankruptcy prediction, the proportion of events is very low, which is often oversampled to eliminate this bias. In this paper, we study the influence of the event rate on discrimination abilities of bankruptcy prediction models. First…
I propose an approach to quantify attention to inflation in the data and show that the decrease in the volatility and persistence of U.S. inflation after the Great Inflation period was accompanied by a decline in the public's attention to…
Being able to predict the occurrence of extreme returns is important in financial risk management. Using the distribution of recurrence intervals---the waiting time between consecutive extremes---we show that these extreme returns are…
We demonstrate that framing, a subjective aspect of news, is a causal precursor to both significant public perception changes, and to federal legislation. We posit, counter-intuitively, that topic news volume and mean article similarity…
Financial sentiment analysis is crucial for understanding the influence of news on stock prices. Recently, large language models (LLMs) have been widely adopted for this purpose due to their advanced text analysis capabilities. However,…
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…
Incorporating decision-making dynamics during an outbreak poses a challenge for epidemiology, faced by several modeling approaches siloed by different disciplines. We propose an epi-economic model where high-frequency choices of individuals…
When making decisions under risk, people often exhibit behaviors that classical economic theories cannot explain. Newer models that attempt to account for these irrational behaviors often lack neuroscience bases and require the introduction…
This paper describes our participation in Task 5 track 2 of SemEval 2017 to predict the sentiment of financial news headlines for a specific company on a continuous scale between -1 and 1. We tackled the problem using a number of…
In recent years, cryptocurrencies have attracted growing attention from both private investors and institutions. Among them, Bitcoin stands out for its impressive volatility and widespread influence. This paper explores the predictability…
The social brain hypothesis fixes to 150 the number of social relationships we are able to maintain. Similar cognitive constraints emerge in several aspects of our daily life, from our mobility up to the way we communicate, and might even…
This research extends the conventional concepts of the bid--ask spread (BAS) and mid-price to include the total market order book bid--ask spread (TMOBBAS) and the global mid-price (GMP). Using high-frequency trading data, we investigate…