Related papers: Indeterminacy in foreign exchange market
In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly…
We study the diffusion of shocks in the global financial cycle and global liquidity conditions to emerging and developing economies. We show that the classification according to their external trade patterns (as commodities' net exporters…
We show that capital flow (CF) volatility exerts an adverse effect on exchange rate (FX) volatility, regardless of whether capital controls have been put in place. However, this effect can be significantly moderated by certain macroeconomic…
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
Norms of Persistent Homology introduced in topological data analysis are seen as indicators of system instability, analogous to the changing predictability that is captured in financial market uncertainty indexes. This paper demonstrates…
Time-varying volatility is an inherent feature of most economic time-series, which causes standard correlation estimators to be inconsistent. The quadrant correlation estimator is consistent but very inefficient. We propose a novel…
Biondi et al. (2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory…
We have discovered 12 independent new empirical scaling laws in foreign exchange data-series that hold for close to three orders of magnitude and across 13 currency exchange rates. Our statistical analysis crucially depends on an…
We study the relation between stock price changes and the difference in the number of sell and buy orders. Using a soft spin model, we describe the price impact of order imbalances and find an analogy to the fluctuation-dissipation theorem…
Econophysics is a science in its infancy, born about ten years ago at this time of writing, at the crossing roads of physics, mathematics, computing and of course economics and finance. It also covers human sciences, because all economics…
A well-known model due to J.-M. Lasry and P.L. Lions that presents the evolution of prices in a market as the evolution of a free boundary in a diffusion equation is suggested to be modified in order to show instabilities for some values of…
In a market with transaction costs, the price of a derivative can be expressed in terms of (preconsistent) price systems (after Kusuoka (1995)). In this paper, we consider a market with binomial model for stock price and discuss how to…
A quantitative check of weak efficiency in US dollar/German mark exchange rates is developed using high frequency data. We show the existence of long term return anomalies. We introduce a technique to measure the available information and…
Both in practice and in the academic literature, models for setting margin requirements in futures markets classically use daily closing price changes. However, as well documented by research on high-frequency data, financial markets have…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…
We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of…
In this paper we compare market price fluctuations with the response to fundamental price drops within the Lux-Marchesi model which is able to reproduce the most important stylized facts of real market data. Major differences can be…
We introduce a deterministic dealer model which implements most of the empirical laws, such as fat tails in the price change distributions, long term memory of volatility and non-Poissonian intervals. We also clarify the causality between…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
We investigate triangular arbitrage within the spot foreign exchange market using high-frequency executable prices. We show that triangular arbitrage opportunities do exist, but that most have short durations and small magnitudes. We find…