The Power (Law) of Indian Markets: Analysing NSE and BSE trading statistics

The nature of fluctuations in the Indian financial market is analyzed in this paper. We have looked at the price returns of individual stocks, with tick-by-tick data from the National Stock Exchange (NSE) and daily closing price data from both NSE and the Bombay Stock Exchange (BSE), the two largest exchanges in India. We find that the price returns in Indian markets follow a fat-tailed cumulative distribution, consistent with a power law having exponent $\alpha \sim 3$, similar to that observed in developed markets. However, the distributions of trading volume and the number of trades have a different nature than that seen in the New York Stock Exchange (NYSE). Further, the price movement of different stocks are highly correlated in Indian markets.Comment: 10 pages, 7 figures, to appear in Proceedings of International Workshop on "Econophysics of Stock Markets and Minority Games" (Econophys-Kolkata II), Feb 14-17, 200

To bail-out or to bail-in? Answers from an agent-based model

Since the beginning of the 2008 financial crisis almost half a trillion euros have been spent to financially assist EU member states in taxpayer-funded bail-outs. These crisis resolutions are often accompanied by austerity programs causing political and social friction on both domestic and international levels. The question of how to resolve failing financial institutions, and how this depends on economic preconditions, is therefore a pressing and controversial issue of vast political importance. In this work we employ an agent-based model to study the economic and financial ramifications of three highly relevant crisis resolution mechanisms. To establish the validity of the model we show that it reproduces a series of key stylized facts of the financial and real economy. The distressed institution can either be closed via a purchase & assumption transaction, it can be bailed-out using taxpayer money, or it may be bailed-in in a debt-to-equity conversion. We find that for an economy characterized by low unemployment and high productivity the optimal crisis resolution with respect to financial stability and economic productivity is to close the distressed institution. For economies in recession with high unemployment the bail-in tool provides the most efficient crisis resolution mechanism. Under no circumstances do taxpayer-funded bail-out schemes outperform bail-ins with private sector involvement

A Multi Agent Model for the Limit Order Book Dynamics

In the present work we introduce a novel multi-agent model with the aim to reproduce the dynamics of a double auction market at microscopic time scale through a faithful simulation of the matching mechanics in the limit order book. The agents follow a noise decision making process where their actions are related to a stochastic variable, "the market sentiment", which we define as a mixture of public and private information. The model, despite making just few basic assumptions over the trading strategies of the agents, is able to reproduce several empirical features of the high-frequency dynamics of the market microstructure not only related to the price movements but also to the deposition of the orders in the book.Comment: 20 pages, 11 figures, in press European Physical Journal B (EPJB

Liquidity Crisis, Granularity of the Order Book and Price Fluctuations

We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity $g$) as a proxy for liquidity. This leads to a Price Impact Surface which depends on both volume $\omega$ and $g$. The dependence on the volume (averaged over the granularity) of the Price Impact Surface is found to be a concave power law function $_g\sim\omega^\delta$ with $\delta\approx 0.59$. Instead the dependence on the granularity is $\phi(\omega,g|\omega)\sim g^\alpha$ with $\alpha\approx-1$, showing a divergence of price fluctuations in the limit $g\to 0$. Moreover, even in intermediate situations of finite liquidity, this effect can be very large and it is a natural candidate for understanding the origin of large price fluctuations.Comment: 18 pages, 7 figure

Studies of the limit order book around large price changes

We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask imbalance, the number of queuing limit orders, the activity (number and volume) of limit orders placed and canceled, etc. The relaxation of the quantities is generally very slow that can be described by a power law of exponent $\approx0.4$. We introduce a numerical model in order to understand the empirical results better. We find that with a zero intelligence deposition model of the order flow the empirical results can be reproduced qualitatively. This suggests that the slow relaxations might not be results of agents' strategic behaviour. Studying the difference between the exponents found empirically and numerically helps us to better identify the role of strategic behaviour in the phenomena.Comment: 19 pages, 7 figure

Eroding market stability by proliferation of financial instruments

We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and complete. In the simple market of interacting traders discussed here, the proliferation of financial instruments erodes systemic stability and it drives the market to a critical state characterized by large susceptibility, strong fluctuations and enhanced correlations among risks. This suggests that the hypothesis of APT may not be compatible with a stable market dynamics. In this perspective, market stability acquires the properties of a common good, which suggests that appropriate measures should be introduced in derivative markets, to preserve stability.Comment: 26 pages, 8 figure

The ChlD subunit links the motor and porphyrin binding subunits of magnesium chelatase

Magnesium chelatase initiates chlorophyll biosynthesis, catalysing the MgATP2- dependent insertion of a Mg2+ ion into protoporphyin IX. The catalytic core of this large enzyme complex consists of three subunits: Bch/ChlI, Bch/ChlD and Bch/ChlH (in bacteriochlorophyll and chlorophyll producing species respectively). The D and I subunits are members of the AAA+ (ATPases associated with various cellular activities) superfamily of enzymes, and they form a complex that binds to H, the site of metal ion insertion. In order to investigate the physical coupling between ChlID and ChlH in vivo and in vitro , ChlD was FLAG-tagged in the cyanobacterium Synechocystis sp. PCC 6803 and co-immunoprecipitation experiments showed interactions with both ChlI and ChlH. Co-production of recombinant ChlD and ChlH in Escherichia coli yielded a ChlDH. Quantitative analysis using microscale thermophoresis (MST) showed magnesium-dependent binding ( K d 331 ± 58 nM) between ChlD and H. The physical basis for a ChlD-H interaction was investigated using chemical crosslinking coupled with mass spectrometry (XL-MS), together with modifications that either truncate ChlD or modify single residues. We found that the C-terminal integrin I domain of ChlD governs association with ChlH, the Mg2+ dependence of which also mediates the cooperative response of the Synechocystis chelatase to magnesium. Our work, showing the interaction site between the AAA+ motor and the chelatase domain of magnesium chelatase, will be essential for understanding how free energy from the hydrolysis of ATP on the AAA+ ChlI subunit is transmitted via the bridging subunit ChlD to the active site on ChlH

Criticality and finite size effects in a simple realistic model of stock market

We discuss a simple model based on the Minority Game which reproduces the main stylized facts of anomalous fluctuations in finance. We present the analytic solution of the model in the thermodynamic limit and show that stylized facts arise only close to a line of critical points with non-trivial properties. By a simple argument, we show that, in Minority Games, the emergence of critical fluctuations close to the phase transition is governed by the interplay between the signal to noise ratio and the system size. These results provide a clear and consistent picture of financial markets as critical systems.Comment: 4 pages, 4 figure