Related papers: The drift burst hypothesis
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
There is a clear distinction between simple laminar and complex turbulent fluids. But in some cases, as for the nocturnal planetary boundary layer, a stable and well-ordered flow can develop intense and sporadic bursts of turbulent activity…
We investigate whether fractal markets hypothesis and its focus on liquidity and invest- ment horizons give reasonable predictions about dynamics of the financial markets during the turbulences such as the Global Financial Crisis of late…
We study the effect of drift in pure-jump transaction-level models for asset prices in continuous time, driven by point processes. The drift is as-sumed to arise from a nonzero mean in the efficient shock series. It follows that the drift…
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
We study a rational expectation model of bubbles and crashes. The model has two components : (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders…
In an Ultrafast Extreme Event (or Mini Flash Crash), the price of a traded stock increases or decreases strongly within milliseconds. We present a detailed study of Ultrafast Extreme Events in stock market data. In contrast to popular…
Nature is intrinsically heterogeneous, and remarkable phenomena can only be observed in the presence of intrinsically nonlinear heterogeneities. Spontaneous pattern formation in nature has fascinated humankind for centuries, and the…
We investigate possible origins of trends using a deterministic threshold model, where we refer to long-term variabilities of price changes (price movements) in financial markets as trends. From the investigation we find two phenomena. One…
We introduce a statistical test for simultaneous jumps in the price of a financial asset and its volatility process. The proposed test is based on high-frequency data and is robust to market microstructure frictions. For the test, local…
In this paper, we are interested in testing if the volatility process is constant or not during a given time span by using high-frequency data with the presence of jumps and microstructure noise. Based on estimators of integrated volatility…
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
The problem of non-stationarity in financial markets is discussed and related to the dynamic nature of price volatility. A new measure is proposed for estimation of the current asset volatility. A simple and illustrative explanation is…
We introduce and study the notion of sure profit via flash strategy, consisting of a high-frequency limit of buy-and-hold trading strategies. In a fully general setting, without imposing any semimartingale restriction, we prove that there…
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…
Timeseries generated from a dynamical source can often be modeled as sample paths of a stochastic differential equation (SDE). The timeseries thus reflects the motion of a particle which flows along the direction provided by a drift /…
Catastrophic events, though rare, do occur and when they occur, they have devastating effects. It is, therefore, of utmost importance to understand the complexity of the underlying dynamics and signatures of catastrophic events, such as…
In this paper, we propose a nonparametric way to test the hypothesis that time-variation in intraday volatility is caused solely by a deterministic and recurrent diurnal pattern. We assume that noisy high-frequency data from a discretely…
We critically review recent claims that financial crashes can be predicted using the idea of log-periodic oscillations or by other methods inspired by the physics of critical phenomena. In particular, the October 1997 `correction' does not…