Multi-asset minority games

We study analytically and numerically Minority Games in which agents may invest in different assets (or markets), considering both the canonical and the grand-canonical versions. We find that the likelihood of agents trading in a given asset depends on the relative amount of information available in that market. More specifically, in the canonical game players play preferentially in the stock with less information. The same holds in the grand canonical game when agents have positive incentives to trade, whereas when agents payoff are solely related to their speculative ability they display a larger propensity to invest in the information-rich asset. Furthermore, in this model one finds a globally predictable phase with broken ergodicity

China inside out: explaining silver flows in the triangular trade, c.1820s-1870s

This paper analyses a new, large dataset of silver prices, as well as silver and merchandise trade flows in and out of China in the crucial decades of the mid-19th century when the Empire was opened to world trade. Silver flows were associated with the interaction between heterogenous monetary preferences and availability of specific coins. Before the 1850s, money markets became increasingly efficient, as reliance on bills of exchange allowed exports to grow in times when sound money was in short supply. When a new standard for silver eventually emerged, there was a new peak in China’s silver imports

Price Transmission in the Cocoa-Chocolate Chain

There is a common perception among consumers that the retail prices respond faster to an increase in the price of raw material than to a decrease. This paper aims at testing the existence of such asymmetric price transmission in the cocoa-chocolate chain on the French market. Two types of asymmetry are suspected: asymmetry in the transmission of positive and negative shocks that may reflect non-competitive behaviour in the chocolate industry and asymmetry in the transmission of small and large shocks that may be due do adjustment costs. These hypotheses are tested using the two-step approach to cointegration of Engle and Granger extended to encompass possible asymmetric adjustment to disequilibrium. Estimates indicate that a three-regime error correction model is the most appropriate. On the one hand, the chocolate price does not adjust to small shocks in the cocoa market. On the other hand, the speed of adjustment is larger for negative deviations than for positive ones. Les consommateurs ont souvent l’impression que les prix de détail répondent plus vite aux augmentations du prix de la matière première qu’aux baisses. Aussi, l’objectif de ce travail est de tester l’existence d’une transmission asymétrique des fluctuations de prix entre la matière première, la fève de cacao, et le produit fini, la tablette de chocolat sur le marché français. Deux formes d’asymétrie, ayant chacune une origine différente, sont recherchées : d’une part, une asymétrie dans la transmission des chocs positifs et négatifs, potentiellement liée à l’exercice d’un pouvoir de marché des industriels, et d’autre part, une asymétrie dans la transmission des grands et des petits chocs de prix liée à la présence de coûts d’ajustement. Les résultats, obtenus à partir d’une modélisation TAR du déséquilibre de prix par rapport à leur valeur de long terme, ne permettent pas de rejeter ces hypothèses. Sur la plus grande partie de la période couverte (1960-2003) le prix de la fève et le prix de la tablette évoluent indépendamment l’un de l’autre. Toutefois, au moment du boom du cacao (fin 70) le prix de la tablette répond rapidement à la hausse des cours de la fève tandis qu’à la fin des années 80, alors que le prix de la fève est retombé à un bas niveau, le prix de la tablette revient lentement vers l’équilibre.  modèle TAR, transmission de prix asymétrique, cacao

Price Transmission in the Cocoa-Chocolate Chain

There is a common perception among consumers that the retail prices respond faster to an increase in the price of raw material than to a decrease. This paper aims at testing the existence of such asymmetric price transmission in the cocoa-chocolate chain on the French market. Two types of asymmetry are suspected: asymmetry in the transmission of positive and negative shocks that may reflect non-competitive behaviour in the chocolate industry and asymmetry in the transmission of small and large shocks that may be due do adjustment costs. These hypotheses are tested using the two-step approach to cointegration of Engle and Granger extended to encompass possible asymmetric adjustment to disequilibrium. Estimates indicate that a three-regime error correction model is the most appropriate. On the one hand, the chocolate price does not adjust to small shocks in the cocoa market. On the other hand, the speed of adjustment is larger for negative deviations than for positive ones.modèle TAR;transmission de prix asymétrique;cacao

Dissecting the Yield Curve: The International Evidence

We develop a term structure model that decomposes nominal yields into the sum of an expectation, term premium, and convexity term and in turn of their real and inflation counterparts. The model explicitly captures the interrelation between yield-only and macroeconomic factors while allowing for aggregate stochastic volatility. We extract the components from the nominal and real yield curve of the United States, the Euro Area, the United Kingdom, and Japan. We find that short-rate expectations have steadily declined over the last two decades and account for the bulk of yield dynamics. Term premia increase with maturity but explain a smaller fraction of yield forecast error variance than previously documented. With regard to yield comovement, the United States generates the strongest spillovers at the long end of the yield curve, whereas the Japanese market is the top importer of shocks

IS FORECASTING NON-PROFESSIONAL INVESTORS TRADING BEHAVIOR POSSIBLE WITH GOOGLE TRENDS?. Trading volumes based on Google’s Search Volume Index as a proxy for investor attention

siirretty Doriast

Episodes of exuberance in housing markets:in search of the smoking gun

After a prolonged period characterized by rapid real appreciation in house prices, there is now broad recognition of the severe correction in housing markets that followed as one of the causes of the 2008-09 global recession. We investigate the time series characteristics of three relevant price indicators of the housing market --real house prices, price-to-income, and price-to-rent ratios-- for the U.S. and 21 other countries during the period 1975Q1-2013Q2 (see Mack and Martínez-García (2011)) for evidence of explosive behavior as a plausible explanation for the boom and bust. The empirical detection of explosive behavior in house prices provides a precise timeline as well as empirical content to the narrative connecting the evolution of housing markets to the global recession; our rich cross-country dataset offers a novel international perspective. For testing and detection, we adopt a pair of novel techniques based on a right-tail variation of the standard Augmented Dickey-Fuller (ADF) test --the supremum ADF (SADF) (Phillips et al. (2011)) and the generalized SADF (GSADF) (Phillips et al. (2012) and Phillips et al. (2013))-- where the alternative hypothesis is of a mildly explosive process (even periodically collapsing with the GSADF test) behavior within sample. Statistically significant periods of exuberance are found in most countries, with our empirical estimates suggesting an unprecedented synchronization across countries preceding the global recession. The boom in housing begins during the late 90s in the U.S. spreading to most countries by the early 2000s, until it bursts for most during 2007-08 as the impact on economic activity was being felt. In this regard, our findings corroborate the narrative of the 2008-09 global recession. In this paper, we also discuss more generally the use of these procedures to monitor international housing markets and as a warning signal

Price Transmission in the Cocoa-Chocolate Chain

Etudes & documentsThere is a common perception among consumers that the retail prices respond faster to an increase in the price of raw material than to a decrease. This paper aims at testing the existence of such asymmetric price transmission in the cocoa-chocolate chain on the French market. Two types of asymmetry are suspected: asymmetry in the transmission of positive and negative shocks that may reflect non-competitive behaviour in the chocolate industry and asymmetry in the transmission of small and large shocks that may be due do adjustment costs. These hypotheses are tested using the two-step approach to cointegration of Engle and Granger extended to encompass possible asymmetric adjustment to disequilibrium. Estimates indicate that a three-regime error correction model is the most appropriate. On the one hand, the chocolate price does not adjust to small shocks in the cocoa market. On the other hand, the speed of adjustment is larger for negative deviations than for positive ones.There is a common perception among consumers that the retail prices respond faster to an increase in the price of raw material than to a decrease. This paper aims at testing the existence of such asymmetric price transmission in the cocoa-chocolate chain on the French market. Two types of asymmetry are suspected: asymmetry in the transmission of positive and negative shocks that may reflect non-competitive behaviour in the chocolate industry and asymmetry in the transmission of small and large shocks that may be due do adjustment costs. These hypotheses are tested using the two-step approach to cointegration of Engle and Granger extended to encompass possible asymmetric adjustment to disequilibrium. Estimates indicate that a three-regime error correction model is the most appropriate. On the one hand, the chocolate price does not adjust to small shocks in the cocoa market. On the other hand, the speed of adjustment is larger for negative deviations than for positive ones.Les consommateurs ont souvent l’impression que les prix de détail répondent plus vite aux augmentations du prix de la matière première qu’aux baisses. Aussi, l’objectif de ce travail est de tester l’existence d’une transmission asymétrique des fluctuations de prix entre la matière première, la fève de cacao, et le produit fini, la tablette de chocolat sur le marché français. Deux formes d’asymétrie, ayant chacune une origine différente, sont recherchées : d’une part, une asymétrie dans la transmission des chocs positifs et négatifs, potentiellement liée à l’exercice d’un pouvoir de marché des industriels, et d’autre part, une asymétrie dans la transmission des grands et des petits chocs de prix liée à la présence de coûts d’ajustement. Les résultats, obtenus à partir d’une modélisation TAR du déséquilibre de prix par rapport à leur valeur de long terme, ne permettent pas de rejeter ces hypothèses. Sur la plus grande partie de la période couverte (1960-2003) le prix de la fève et le prix de la tablette évoluent indépendamment l’un de l’autre. Toutefois, au moment du boom du cacao (fin 70) le prix de la tablette répond rapidement à la hausse des cours de la fève tandis qu’à la fin des années 80, alors que le prix de la fève est retombé à un bas niveau, le prix de la tablette revient lentement vers l’équilibre. </meta

Essays in High Frequency Trading and Market Structure

High Frequency Trading (HFT) is the use of algorithmic trading technology to gain a speed advantage when operating in financial markets. The increasing gap between the fastest and the slowest players in financial markets raises questions around the efficiency of markets, the strategies players must use to trade effectively and the overall fairness of markets which regulators must maintain. This research explores markets affected by HFT activity from three perspectives. Firstly an updated microstructure model is proposed to allow for empirical exploration of current levels of noise in financial markets, this illustrates current noise levels are not disruptive to dominant trading strategies. Second, a ARCH type model is used to de-compose market data into a series of traders working price levels to demonstrate that in cases of suspected market abuse, regulators can assess the impact individual traders make on price even in fast markets. Finally, a review of various HFT control measures are examined in terms of effectiveness and in light of an ordoliberal benchmark of fairness. The work illustrates the extents to which HFT activity is not yet disruptive, but also shows where HFT can be a conduit for market abuse and provides a series of recommendations around use of circuit breakers, algorithmic governance standards and additional considerations where assets are dual listed in different countries

Critical Market Crashes

This review is a partial synthesis of the book ``Why stock market crash'' (Princeton University Press, January 2003), which presents a general theory of financial crashes and of stock market instabilities that his co-workers and the author have developed over the past seven years. The study of the frequency distribution of drawdowns, or runs of successive losses shows that large financial crashes are ``outliers'': they form a class of their own as can be seen from their statistical signatures. If large financial crashes are ``outliers'', they are special and thus require a special explanation, a specific model, a theory of their own. In addition, their special properties may perhaps be used for their prediction. The main mechanisms leading to positive feedbacks, i.e., self-reinforcement, such as imitative behavior and herding between investors are reviewed with many references provided to the relevant literature outside the confine of Physics. Positive feedbacks provide the fuel for the development of speculative bubbles, preparing the instability for a major crash. We demonstrate several detailed mathematical models of speculative bubbles and crashes. The most important message is the discovery of robust and universal signatures of the approach to crashes. These precursory patterns have been documented for essentially all crashes on developed as well as emergent stock markets, on currency markets, on company stocks, and so on. The concept of an ``anti-bubble'' is also summarized, with two forward predictions on the Japanese stock market starting in 1999 and on the USA stock market still running. We conclude by presenting our view of the organization of financial markets.Comment: Latex 89 pages and 38 figures, in press in Physics Report