Tick size and price diffusion

A tick size is the smallest increment of a security price. It is clear that at the shortest time scale on which individual orders are placed the tick size has a major role which affects where limit orders can be placed, the bid-ask spread, etc. This is the realm of market microstructure and there is a vast literature on the role of tick size on market microstructure. However, tick size can also affect price properties at longer time scales, and relatively less is known about the effect of tick size on the statistical properties of prices. The present paper is divided in two parts. In the first we review the effect of tick size change on the market microstructure and the diffusion properties of prices. The second part presents original results obtained by investigating the tick size changes occurring at the New York Stock Exchange (NYSE). We show that tick size change has three effects on price diffusion. First, as already shown in the literature, tick size affects price return distribution at an aggregate time scale. Second, reducing the tick size typically leads to an increase of volatility clustering. We give a possible mechanistic explanation for this effect, but clearly more investigation is needed to understand the origin of this relation. Third, we explicitly show that the ability of the subordination hypothesis in explaining fat tails of returns and volatility clustering is strongly dependent on tick size. While for large tick sizes the subordination hypothesis has significant explanatory power, for small tick sizes we show that subordination is not the main driver of these two important stylized facts of financial market.Comment: To be published in the "Proceedings of Econophys-Kolkata V International Workshop on "Econophysics of Order-driven Markets" March 9-13, 2010, The New Economic Windows series of Springer-Verlag Italia

The virtues and vices of equilibrium and the future of financial economics

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then we present a critique and describe why this approach is inherently limited, and why economics needs to move in new directions if it is to continue to make progress. We stress that this shouldn't be a question of dogma, but should be resolved empirically. There are situations where equilibrium models provide useful predictions and there are situations where they can never provide useful predictions. There are also many situations where the jury is still out, i.e., where so far they fail to provide a good description of the world, but where proper extensions might change this. Our goal is to convince the skeptics that equilibrium models can be useful, but also to make traditional economists more aware of the limitations of equilibrium models. We sketch some alternative approaches and discuss why they should play an important role in future research in economics.Comment: 68 pages, one figur

The size of the immune repertoire of bacteria

Some bacteria and archaea possess an immune system, based on the CRISPR-Cas mechanism, that confers adaptive immunity against phage. In such species, individual bacteria maintain a "cassette" of viral DNA elements called spacers as a memory of past infections. The typical cassette contains a few dozen spacers. Given that bacteria can have very large genomes, and since having more spacers should confer a better memory, it is puzzling that so little genetic space would be devoted by bacteria to their adaptive immune system. Here, we identify a fundamental trade-off between the size of the bacterial immune repertoire and effectiveness of response to a given threat, and show how this tradeoff imposes a limit on the optimal size of the CRISPR cassette.Comment: 9 pages, 5 figure

Rivalry and Learning Among Clustered and Isolated Firms

In this paper explore the relationships between rivalry and geographical proximity at the very level of contacts between individual firms. In particular, we wish to highlight the influence of geographical proximity on rival identification, on the comparison of their knowledge, and on the consequent elaboration of a strategy. In order to reproduce the interactions between firms, we made use of an agent-based model (ABM) where the strategic choices of rival firms are derived from general assumptions on competitive behavior and learning processes. Aim of the model is to investigate the co-evolution of firms' knowledge, strategies and performances. Substantial empirical evidences claim that firms located in geographical clusters are more likely to learn and innovate than isolated firms.Industrial Clusters, Industrial Districts, Knowledge Development, Rivalry

Nanoclustering as a dominant feature of plasma membrane organization

Early studies have revealed that some mammalian plasma membrane proteins exist in small nanoclusters. The advent of super-resolution microscopy has corroborated and extended this picture, and led to the suggestion that many, if not most, membrane proteins are clustered at the plasma membrane at nanoscale lengths. In this Commentary, we present selected examples of glycosylphosphatidyl-anchored proteins, Ras family members and several immune receptors that provide evidence for nanoclustering. We advocate the view that nanoclustering is an important part of the hierarchical organization of proteins in the plasma membrane. According to this emerging picture, nanoclusters can be organized on the mesoscale to form microdomains that are capable of supporting cell adhesion, pathogen binding and immune cell-cell recognition amongst other functions. Yet, a number of outstanding issues concerning nanoclusters remain open, including the details of their molecular composition, biogenesis, size, stability, function and regulation. Notions about these details are put forth and suggestions are made about nanocluster function and why this general feature of protein nanoclustering appears to be so prevalent.Postprint (published version

Integrating explanation-based and empirical learning methods in OCCAM

This paper discusses an approach to integrating empirical and explanation based learning techniques. The paper focuses on OCCAM, a program that has the capability to acquire via empirical means the knowledge needed for analytical learning. Two examples of this capability are discussed:The ability to use empirical techniques to acquire a domain theory for explanation based learning.The ability to use empirical learning techniques to find common patterns for causal relationships. These patterns encode a theory of causality (i.e., a set of general principles for recognizing causal relationships). Once acquired, a theory of causality can facilitate later learning by focusing on hypotheses which are consistent with the theory