Related papers: Rising Marginal Costs, Rising Prices?
Prices of tradables can only be expressed relative to each other at any instant of time. This fundamental fact should therefore also hold for contigent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables.…
Statistical properties of an order book and the effect they have on price dynamics were studied using the high-frequency NASDAQ Level II data. It was observed that the size distribution of marketable orders (transaction sizes) has power law…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…
The finding of small price changes in many retail price datasets is often viewed as a puzzle. We show that a possible explanation for the presence of small price changes is related to sales volume, an observation that has been overlooked in…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
This paper reviews some of the phenomenological models which have been introduced to incorporate the scaling properties of financial data. It also illustrates a microscopic model, based on heterogeneous interacting agents, which provides a…
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…
We propose and study a simple stochastic model for the dynamics of a limit order book, in which arrivals of market order, limit orders and order cancellations are described in terms of a Markovian queueing system. Through its analytical…
While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by…
This paper examines how the observability of demand shocks influences pricing patterns and market outcomes when firms delegate pricing decisions to Q-learning algorithms. Simulations show that demand observability induces Q-learning agents…
We study the price impact of order book events - limit orders, market orders and cancelations - using the NYSE TAQ data for 50 U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
This paper develops a theory of competitive equilibrium with indivisible goods based entirely on economic conditions on demand. The key idea is to analyze complementarity and substitutability between bundles of goods, rather than merely…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
In this paper, we assume that the permanent market impact of metaorders is linear and that the price is a martingale. Those two hypotheses enable us to derive the evolution of the price from the dynamics of the flow of market orders. For…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
Under proportional transaction costs, a price process is said to have a consistent price system, if there is a semimartingale with an equivalent martingale measure that evolves within the bid-ask spread. We show that a continuous,…
We empirically investigate the distributional effects of inflation on workers' unemployment tail risks using instrumental variable quantile regression. We find that supply-driven inflation disproportionately raises unemployment tail risks…
Economic engineering is a new field wherein economic systems are modelled in the same manner as traditional mechanical and electrical engineering systems. In this paper, we use Newton's theory of motion as the basis for the theory of…
Firms that price perishable resources -- airline seats, hotel rooms, seasonal inventory -- now routinely use demand predictions, but these predictions vary widely in quality. Under hard capacity constraints, acting on an inaccurate…