Results 1  10
of
27
How markets slowly digest changes in supply and demand
, 2008
"... 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 incorporated into prices. Because revealed market liquidity is ..."
Abstract

Cited by 81 (11 self)
 Add to MetaCart
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 incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy or sell can only be traded incrementally, over periods of time as long as months. As a result order flow is a highly persistent longmemory process. Maintaining compatibility with market efficiency has profound consequences on price formation, on the dynamics of liquidity, and on the nature of impact. We review a body of theory that makes detailed quantitative predictions about the volume and time dependence of market impact, the bidask spread, order book dynamics, and volatility. Comparisons to data yield some encouraging successes. This framework suggests a novel interpretation of financial information, in which agents are at best only weakly informed and all have a similar and extremely noisy impact on prices. Most of the processed information appears to come from supply and demand itself, rather than from
Modelling microstructure noise with mutually exciting point processes. Submitted to Quantitative Finance
, 2010
"... point processes ..."
Minimal agent based model for financial markets II: statistical properties of the linear and multiplicative dynamics. to be submitted
, 2008
"... We introduce a minimal Agent Based Model for financial markets to understand the nature and SelfOrganization of the Stylized Facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the main most important deviations of price time series from a Random ..."
Abstract

Cited by 13 (3 self)
 Add to MetaCart
(Show Context)
We introduce a minimal Agent Based Model for financial markets to understand the nature and SelfOrganization of the Stylized Facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the main most important deviations of price time series from a Random Walk behavior. We focus on four essential ingredients: fundamentalist agents which tend to stabilize the market; chartist agents which induce destabilization; analysis of price behavior for the two strategies; herding behavior which governs the possibility of changing strategy. Bubbles and crashes correspond to situations dominated by chartists, while fundamentalists provide a long time stability (on average). The Stylized Facts are shown to correspond to an intermittent behavior which occurs only for a finite value of the number of agents N. Therefore they correspond to finite size effect which, however, can occur at different time scales. We propose a new mechanism for the SelfOrganization of this state which is linked to the existence of a threshold for the agents to be active or not active. The feedback between price fluctuations and number of active agents represent a crucial element for this state of SelfOrganizedIntermittency. The model can be easily generalized to consider more realistic variants. 1
INDIVIDUAL AND COLLECTIVE STOCK DYNAMICS: INTRADAY SEASONALITIES
, 1009
"... Abstract. We establish several new stylised facts concerning the intraday seasonalities of stock dynamics. Beyond the well known Ushaped pattern of the volatility, we find that the average correlation between stocks increases throughout the day, leading to a smaller relative dispersion between sto ..."
Abstract

Cited by 7 (1 self)
 Add to MetaCart
(Show Context)
Abstract. We establish several new stylised facts concerning the intraday seasonalities of stock dynamics. Beyond the well known Ushaped pattern of the volatility, we find that the average correlation between stocks increases throughout the day, leading to a smaller relative dispersion between stocks. Somewhat paradoxically, the kurtosis (a measure of volatility surprises) reaches a minimum at the open of the market, when the volatility is at its peak. We confirm that the dispersion kurtosis is a markedly decreasing function of the index return. This means that during large market swings, the idiosyncratic component of the stock dynamics becomes subdominant. In a nutshell, early hours of trading are dominated by idiosyncratic or sector specific effects with little surprises, whereas the influence of the market factor increases throughout the day, and surprises become more frequent. 1.
A proposal for impactadjusted valuation: Critical leverage and execution risk,” ArXiv eprints
, 2012
"... SFI Working Papers contain accounts of scientific work of the author(s) and do not necessarily represent the views of the Santa Fe Institute. We accept papers intended for publication in peerreviewed journals or proceedings volumes, but not papers that have already appeared in print. Except for pap ..."
Abstract

Cited by 5 (4 self)
 Add to MetaCart
(Show Context)
SFI Working Papers contain accounts of scientific work of the author(s) and do not necessarily represent the views of the Santa Fe Institute. We accept papers intended for publication in peerreviewed journals or proceedings volumes, but not papers that have already appeared in print. Except for papers by our external faculty, papers must be based on work done at SFI, inspired by an invited visit to or collaboration at SFI, or funded by an SFI grant. ©NOTICE: This working paper is included by permission of the contributing author(s) as a means to ensure timely distribution of the scholarly and technical work on a noncommercial basis. Copyright and all rights therein are maintained by the author(s). It is understood that all persons copying this information will adhere to the terms and constraints invoked by each author's copyright. These works may be reposted only with the explicit permission of the copyright holder. www.santafe.edu SANTA FE INSTITUTE Impactadjusted valuation and the criticality of leverage
Liquidity Crisis, Granularity of the Order Book and Price Fluctuations
, 2009
"... We introduce a microscopic model for the dynamics of the order book which permits to study how finite liquidity (liquidity crisis) and the associated granularity influence price fluctuations. This leads to a Price Impact Surface which depends on both volume ω and granularity g for which we propose a ..."
Abstract

Cited by 4 (3 self)
 Add to MetaCart
(Show Context)
We introduce a microscopic model for the dynamics of the order book which permits to study how finite liquidity (liquidity crisis) and the associated granularity influence price fluctuations. This leads to a Price Impact Surface which depends on both volume ω and granularity g for which we propose a new practical definition. The model is tested with respect to various experimental data which permit to identify to realistic values of its parameters. The price dependence on the volume (averaged on the granularity) is found to be a concave power law function < φ(ω,g)>g ∼ ω δ with δ ≈ 0.58. The dependence of the Price Impact Surface on the granularity is φ(ω,gω) ∼ g α with α ≈ −1 where g is a granularity parameter that we introduce to take into account the effect of finite liquidity. These results permit a quantitative analysis of the effects of finite liquidity and liquidity crisis. We can see that, even in intermediate situations of finite liquidity, this effect is indeed very large and it is a natural candidate for understanding the origin of large price fluctuations. 1
NonGaussianity of the Intraday Returns Distribution: its evolution in time. arXiv preprint qfin.ST/1112.0770
, 2011
"... We find a remarkable time persistence of various proxies for the kurtosis (pkurtosis) of the intraday returns distribution for the S&P500 index and this permits a significant measure of their evolution from 1983 to 2004. There appears a long time scale dramatic variation of the pkurtosis uncor ..."
Abstract

Cited by 2 (0 self)
 Add to MetaCart
We find a remarkable time persistence of various proxies for the kurtosis (pkurtosis) of the intraday returns distribution for the S&P500 index and this permits a significant measure of their evolution from 1983 to 2004. There appears a long time scale dramatic variation of the pkurtosis uncorrelated with the variation of the volatility thus falsifying any hypothesis of a universal shape for the probability distribution of the returns. A large increase in the kurtosis anticipates the October 87 crash. During the years 19912003 it continuously decreases even when the volatility grows during the dotcom bubble. We propose some speculative interpretations of these results. 1
An extensive set of scaling laws and the FX coastline
"... We have discovered 17 new empirical scaling laws in foreign exchange dataseries that hold for close to three orders of magnitude and across 13 currency exchange rates. Our statistical analysis crucially depends on an eventbased approach that measures the relationship between different types of eve ..."
Abstract

Cited by 1 (1 self)
 Add to MetaCart
We have discovered 17 new empirical scaling laws in foreign exchange dataseries that hold for close to three orders of magnitude and across 13 currency exchange rates. Our statistical analysis crucially depends on an eventbased approach that measures the relationship between different types of events. The scaling laws give an accurate estimation of the length of the pricecurve coastline, which turns out to be surprisingly long. The new laws substantially extend the catalogue of stylised facts and sharply constrain the space of possible theoretical explanations of the market mechanisms.