Papers, wiki, Option Blackboard, encyclopedia, and cards.
The Chinese stock market experienced an abrupt crash in 2015, and over one-third of its market value evaporated. Given its associations with fear and the fine resolution with respect to frequency, the illiquidity of stocks may offer a promising perspective for understanding and even signaling a market crash. In this study, by connecting stocks with illiquidity comovements, an illiquidity network is established to mod…
This paper proposes a simple and parsimonious discrete-time simulation model to describe the endogenous formation and periodic collapse of financial bubbles. While existing literature has extensively explored the statistical properties of locally explosive bubble dynamics, capturing the micro-level interplay of investor herd behavior and panic selling within a unified framework remains a challenge. Our model addresse…
Oft-cited causes of mini-flash crashes include human errors, endogenous feedback loops, the nature of modern liquidity provision, fundamental value shocks, and market fragmentation. We develop a mathematical model which captures aspects of the first three explanations. Empirical features of recent mini-flash crashes are present in our framework. For example, there are periods when no such events will occur. If they d…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical studies suggest that large price jumps cannot be explained by news and are the result of endogenous feedback loops. Although plausible, a clear-cut empirical evidence for such a s…
This paper studies a modular cash-overlay rule for allocating between a fixed growth-defensive risky sleeve R and interest-bearing cash C. The risky sleeve is a static 50/50 combination of equal-weight growth/technology and defensive income/value ETF baskets; the target is future R-C return, with the cash leg earning the contemporaneous cash rate. Two independent filters are tested. The slow-tail filter maps continuo…
This paper describes simulations and analysis of flash crash scenarios in an agent-based modelling framework. We design, implement, and assess a novel high-frequency agent-based financial market simulator that generates realistic millisecond-level financial price time series for the E-Mini S&P 500 futures market. Specifically, a microstructure model of a single security traded on a central limit order book is provide…
The imbalance of buying and selling functions profoundly in the formation of market trends, however, a fine-granularity investigation of the imbalance is still missing. This paper investigates a unique transaction dataset that enables us to inspect the imbalance of buying and selling on the man-times level at high frequency, what we call 'trading polarity', for a large cross-section of stocks from Shenzhen Stock Exch…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes and effects. This review and essay evaluates some of the hypotheses offered to explain the market crashes that often follow asset price bubbles. Starting from historical accounts …
Leveraged ETFs (L-ETFs) are exchange-traded funds that achieve price movements several times greater than an index by holding index-linked futures such as Nikkei Stock Average Index futures. It is known that when the price of an L-ETF falls, the L-ETF uses the liquidity of futures to limit the decline through arbitrage trading. Conversely, when the price of a futures contract falls, the futures contract uses the liqu…
An order-book market whose liquidity provision is anchored to a fundamental value carries a restoring force: the price mean-reverts to value and the book refills after a shock. We show this restoring force is a robust intrinsic stabiliser and identify it causally-dialling the anchor down removes the mean-reversion, and a leverage-driven fire-sale then self-sustains. Separately, we ask whether a stressed market transm…
In this article, we present a discrete time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling framework to analyze the effects of trading frequency on market liquidity in a very general setting. In particular, we demonstrate the dual effect of high trading frequency. On the …
We have designed an innovative portfolio rebalancing mechanism termed the Cascading Waterfall Round Robin Mechanism. This algorithmic approach recommends an ideal size and number of trades for each asset during the periodic rebalancing process, factoring in the gas fee and slippage. The essence of the model we have created gives indications regarding whether trades should be made on individual assets depending on the…
This article aims at reviewing recent empirical and theoretical developments usually grouped under the term Econophysics. Since its name was coined in 1995 by merging the words Economics and Physics, this new interdisciplinary field has grown in various directions: theoretical macroeconomics (wealth distributions), microstructure of financial markets (order book modelling), econometrics of financial bubbles and crash…
This paper explores how Large Language Models (LLMs) behave in a classic experimental finance paradigm widely known for eliciting bubbles and crashes in human participants. We adapt an established trading design, where traders buy and sell a risky asset with a known fundamental value, and introduce several LLM-based agents, both in single-model markets (all traders are instances of the same LLM) and in mixed-model "b…
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price volatility uncertainty and intensity. Applying the model to high frequent data test in China stock market, we have main findings as f…
In a recent comment (Johansen A 2003 An alternative view, Quant. Finance 3: C6-C7, cond-mat/0302141), Anders Johansen has criticized our methodology and has questioned several of our results published in [Sornette D and Zhou W-X 2002 The US 2000-2002 market descent: how much longer and deeper? Quant. Finance 2: 468-81, cond-mat/0209065] and in our two consequent preprints [cond-mat/0212010, physics/0301023]. In the p…
Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously with an agreement to buy it back at a later date. Repurchase agreements (repos) market size is a very important element in calculating the overall leverage in a financial market. The…
Carry Trade FX — Funding low-yield currencies to invest in high-yielders — pro-cyclical and crash-prone.
Volatility Smile — Strike-dependent implied vol pattern reflecting crash and demand premia.
Crash Premium — Extra cost of downside protection versus historical crash frequency.
Flash Crash Fragility US (Liquidity).
Flash Crash Fragility Euro Area (Liquidity).
Flash Crash Fragility UK (Liquidity).
Flash Crash Fragility Japan (Liquidity).
Flash Crash Fragility China (Liquidity).
Flash Crash Fragility EM Asia (Liquidity).
Flash Crash Fragility LatAm (Liquidity).
Flash Crash Fragility CEEMEA (Liquidity).
Flash Crash Fragility Canada (Liquidity).
Flash Crash Fragility Australia (Liquidity).
Flash Crash Fragility risk-on (Liquidity).
Flash Crash Fragility risk-off (Liquidity).
Flash Crash Fragility tightening (Liquidity).
Flash Crash Fragility easing (Liquidity).
Flash Crash Fragility stagflation (Liquidity).
Flash Crash Fragility reflation (Liquidity).
Flash Crash Fragility disinflation (Liquidity).
Flash Crash Fragility liquidity-crisis (Liquidity).
Flash Crash Fragility carry (Liquidity).
Flash Crash Fragility recession (Liquidity).
Flash Crash Fragility month-end (Liquidity).
Flash Crash Fragility quarter-end (Liquidity).
Flash Crash Fragility year-end (Liquidity).
Carry Trade FX — Funding low-yield currencies to invest in high-yielders — pro-cyclical and crash-prone.
Crash Premium — Extra cost of downside protection versus historical crash frequency.
Flash Crash Fragility Australia (Liquidity).
Flash Crash Fragility Canada (Liquidity).
Flash Crash Fragility carry (Liquidity).
Flash Crash Fragility CEEMEA (Liquidity).
Flash Crash Fragility China (Liquidity).
Flash Crash Fragility disinflation (Liquidity).
Flash Crash Fragility easing (Liquidity).
Flash Crash Fragility EM Asia (Liquidity).
Flash Crash Fragility Euro Area (Liquidity).
Flash Crash Fragility Japan (Liquidity).
Flash Crash Fragility LatAm (Liquidity).
Flash Crash Fragility liquidity-crisis (Liquidity).
Flash Crash Fragility month-end (Liquidity).
Flash Crash Fragility quarter-end (Liquidity).
Flash Crash Fragility recession (Liquidity).
Flash Crash Fragility reflation (Liquidity).
Flash Crash Fragility risk-off (Liquidity).
Flash Crash Fragility risk-on (Liquidity).
Flash Crash Fragility stagflation (Liquidity).
Flash Crash Fragility tightening (Liquidity).
Flash Crash Fragility UK (Liquidity).
Flash Crash Fragility US (Liquidity).