Predictability of large future changes in a competitive evolving population

The dynamical evolution of many economic, sociological, biological and physical systems tends to be dominated by a relatively small number of unexpected, large changes (`extreme events'). We study the large, internal changes produced in a generic multi-agent population competing for a limited resource, and find that the level of predictability actually increases prior to a large change. These large changes hence arise as a predictable consequence of information encoded in the system's global state.Comment: 10 pages, 3 figure

Evaluating Greek equity funds using data envelopment analysis

This study assesses the relative performance of Greek equity funds employing a non-parametric method, specifically Data Envelopment Analysis (DEA). Using an original sample of cost and operational attributes we explore the e¤ect of each variable on funds' operational efficiency for an oligopolistic and bank-dominated fund industry. Our results have significant implications for the investors' fund selection process since we are able to identify potential sources of inefficiencies for the funds. The most striking result is that the percentage of assets under management affects performance negatively, a conclusion which may be related to the structure of the domestic stock market. Furthermore, we provide evidence against the notion of funds' mean-variance efficiency

High frequency statistical arbitrage via the optimal thermal causal path

We consider the problem of identifying similarities and causality relationships in a given set of financial time series data streams. We develop further the “Optimal Thermal Causal Path” method, which is a non-parametric method proposed by Sornette et al. The method considers the mismatch between a given pair of time series in order to identify the expected minimum energy path lead-lag structure between the pair. Traders may find this a useful tool for directional trading, to spot arbitrage opportunities. We add a curvature energy term to the method and we propose an approximation technique to reduce the computational time. We apply the method and approximation technique on various market sectors of NYSE data and extract the highly correlated pairs of time series. We show how traders could exploit arbitrage opportunities by using the method

Implied cost of capital investment strategies - evidence from international stock markets

Investors can generate excess returns by implementing trading strategies based on publicly available equity analyst forecasts. This paper captures the information provided by analysts by the implied cost of capital (ICC), the internal rate of return that equates a firm's share price to the present value of analysts' earnings forecasts. We find that U.S. stocks with a high ICC outperform low ICC stocks on average by 6.0% per year. This spread is significant when controlling the investment returns for their risk exposure as proxied by standard pricing models. Further analysis across the world's largest equity markets validates these results

Investigating the potentially contradictory microfoundations of financialization

The existing academic literature on financialization points to multiple instances in which firms attempt to demonstrate the vitality of their stock-market position in ways which ultimately prove to be self-harming. I demonstrate, in the first instance as a matt er of immanent logic, that these actions are linked to the interplay of contradictory tendencies in the microfoundations of financialization. Under conditions of financialization, firms create additional sources of credit to capitalize their productive activities by driving their stock price into greater increases than the market average, thereby generating capital gains. Yet, the more it becomes public knowledge that the financing tricks used to inflate the stock price provide no productive benefit to the firm, the more it would seem to create incentives for fund managers to hold portfolios that replicate the stock market as a whole. In this way, they will minimize their exposure to financial misrepresentation. Such a stance undermines financialized business models, but it does in any case conform to fund managers' basic theoretical training, which revolves around the logical demonstration that an individual stock cannot systematically out-perform the market average. I review the available empirical studies of fund manager decision-making to show that they find against the existence of a simple performativity loop operating between finance theory and fund manager behaviour. However, on many points the empirical evidence does confirm the theoretically derived conclusion concerning the potentially contradictory microfoundations of financialization. Fund managers often do act in a way which is consistent with finance theory's core claim that an index-tracking strategy represents the only equilibrium portfolio, even if this is only rarely as a result of the direct performativity of the theory