Related papers: Correlation structure of extreme stock returns
Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating a set of 20 high cap stocks traded at the Italian Stock Exchange, we find that there is a large number of high…
We study the dependence of volatility on the stock price in the stochastic volatility framework on the example of the Heston model. To be more specific, we consider the conditional expectation of variance (square of volatility) under fixed…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
Lead/lag relationships are an important stylized fact at high frequency. Some assets follow the path of others with a small time lag. We provide indicators to measure this phenomenon using tick-by-tick data. Strongly asymmetric…
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…
Recently, Chatterjee has introduced a new coefficient of correlation which has several natural properties. In particular, the coefficient attains its maximal value if and only if one variable is a measurable function of the other variable.…
Recently the interest of researchers has shifted from the analysis of synchronous relationships of financial instruments to the analysis of more meaningful asynchronous relationships. Both of those analyses are concentrated only on…
We measure the influence of different time-scales on the dynamics of financial market data. This is obtained by decomposing financial time series into simple oscillations associated with distinct time-scales. We propose two new time-varying…
The correlation function of a financial index of the New York stock exchange, the S&P 500, is analyzed at 1 min intervals over the 13-year period, Jan 84 -- Dec 96. We quantify the correlations of the absolute values of the index increment.…
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…
This study develops a multi-factor framework where not only market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation…
We present two statistical causes for the distortion of correlations on high-frequency financial data. We demonstrate that the asynchrony of trades as well as the decimalization of stock prices has a large impact on the decline of the…
We analyze the interaction between stock prices of big companies in the USA and Germany using Granger Causality. We claim that the increase in pair-wise Granger causality interaction between prices in the times of crisis is the consequence…
Previous research has shown that for stock indices, the most likely time until a return of a particular size has been observed is longer for gains than for losses. We establish that this so-called gain/loss asymmetry is present also for…
Multivariate Distributions are needed to capture the correlation structure of complex systems. In previous works, we developed a Random Matrix Model for such correlated multivariate joint probability density functions that accounts for the…
The cross correlation matrix between equities comprises multiple interactions between traders with varying strategies and time horizons. In this paper, we use the Maximum Overlap Discrete Wavelet Transform to calculate correlation matrices…
We point out a stunning time asymmetry in the short time cross correlations between intra-day and overnight volatilities (absolute values of log-returns of stock prices). While overnight volatility is significantly (and positively)…
Forward-looking correlations are of interest in different financial applications, including factor-based asset pricing, forecasting stock-price movements or pricing index options. With a focus on non-FX markets, this paper defines necessary…
The thesis is composed of three parts. Part I introduces the mathematical and statistical tools that are relevant for the study of dependences, as well as statistical tests of Goodness-of-fit for empirical probability distributions. I…
We model systemic risk using a common factor that accounts for market-wide shocks and a tail dependence factor that accounts for linkages among extreme stock returns. Specifically, our theoretical model allows for firm-specific impacts of…