Factorising equity returns in an emerging market through exogenous shocks and capital flows

A technique from stochastic portfolio theory [Fernholz, 1998] is applied to analyse equity returns of Small, Mid and Large cap portfolios in an emerging market through periods of growth and regional crises, up to the onset of the global financial crisis. In particular, we factorize portfolios in the South African market in terms of distribution of capital, change of stock ranks in portfolios, and the effect due to dividends for the period Nov 1994 to May 2007. We discuss the results in the context of broader economic thinking to consider capital flows as risk factors, turning around more established approaches which use macroeconomic and socio-economic conditions to explain Foreign Direct Investment (into the economy) and Net Portfolio Investment (into equity and bond markets).Comment: 27 pages, 12 figure

High-speed detection of emergent market clustering via an unsupervised parallel genetic algorithm

We implement a master-slave parallel genetic algorithm (PGA) with a bespoke log-likelihood fitness function to identify emergent clusters within price evolutions. We use graphics processing units (GPUs) to implement a PGA and visualise the results using disjoint minimal spanning trees (MSTs). We demonstrate that our GPU PGA, implemented on a commercially available general purpose GPU, is able to recover stock clusters in sub-second speed, based on a subset of stocks in the South African market. This represents a pragmatic choice for low-cost, scalable parallel computing and is significantly faster than a prototype serial implementation in an optimised C-based fourth-generation programming language, although the results are not directly comparable due to compiler differences. Combined with fast online intraday correlation matrix estimation from high frequency data for cluster identification, the proposed implementation offers cost-effective, near-real-time risk assessment for financial practitioners.Comment: 10 pages, 5 figures, 4 tables, More thorough discussion of implementatio

Essential Spectra of Linear Relations

Five essential spectra of linear relations are defined in terms of semi-Fredholm properties and the index. Basic properties of these sets are established and the perturbation theory for semi-Fredholm relations is then applied to verify a generalisation of Weyl's theorem for single-valued operators. We conclude with a spectral mapping theorem.Comment: 11 page

Multivalued semi-Fredholm operators in normed linear spaces

Bibliography: leaves 176-182.Certain properties associated with these classes are stable under small perturbation, i.e. stable under additive perturbation by continuous operators whose norms are less than the minimum modulus of the relation being perturbed, and are also stable under perturbation by compact, strictly singular or strictly cosingular operators. In this work we continue the study of these classes and introduce the classes of α-Atkinson and β-Atkinson relations. These are subclasses of upper and lower semi-Fredholm relations respectively, having generalised inverses and defined in terms of the existence of continuous projections onto their ranges and nullspaces

An analysis of Cross-correlations in South African Market data

We apply random matrix theory to compare correlation matrix estimators C obtained from emerging market data. The correlation matrices are constructed from 10 years of daily data for stocks listed on the Johannesburg Stock Exchange (JSE) from January 1993 to December 2002. We test the spectral properties of C against random matrix predictions and find some agreement between the distributions of eigenvalues, nearest neighbour spacings, distributions of eigenvector components and the inverse participation ratios for eigenvectors. We show that interpolating both missing data and illiquid trading days with a zero-order hold increases agreement with RMT predictions. For the more realistic estimation of correlations in an emerging market, we suggest a pairwise measured-data correlation matrix. For the data set used, this approach suggests greater temporal stability for the leading eigenvectors. An interpretation of eigenvectors in terms of trading strategies is given in lieu of classification by economic sectors.Comment: 19 pages, 15 figures, additional figures, discussion and reference