arXiv · arXiv · 2021
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a purely data-driven model in which trades mechanically impact prices with a time-decaying kernel. We find that, remarkably, both models predict the exact same price dynamics at high …
Michele Vodret, Iacopo Mastromatteo, Bence Tóth, Michael Benzaquen
arXiv · arXiv · 2016
The aim of this study is to investigate quantitatively whether share prices deviated from company fundamentals in the stock market crash of 2008. For this purpose, we use a large database containing the balance sheets and share prices of 7,796 worldwide companies for the period 2004 through 2013. We develop a panel regression model using three financial indicators--dividends per share, cash flow per share, and book v…
Taisei Kaizoji, Michiko Miyano
OpenAlex · National Bureau of Economic Research · 2007 · cites 203
Commodity futures risk premiums vary across commodities and over time depending on the level of physical inventories, as predicted by the Theory of Storage.Using a comprehensive dataset on 31 commodity futures and physical inventories between 1969 and 2006, we show that the convenience yield is a decreasing, non-linear relationship of inventories.Price measures, such as the futures basis, prior futures returns, and s…
Gary B. Gorton, Fumio Hayashi, K. Geert Rouwenhorst
arXiv · arXiv · 2024
This paper examines the influence of low-frequency macroeconomic variables on the high-frequency returns of copper futures and the long-term correlation with the S&P 500 index, employing GARCH-MIDAS and DCC-MIDAS modeling frameworks. The estimated results of GARCH-MIDAS show that realized volatility (RV), level of interest rates (IR), industrial production (IP) and producer price index (PPI), volatility of Slope, PPI…
Zian Wang, Xinshu Li
arXiv · arXiv · 2023
On-chain data (metrics) of blockchain networks, akin to company fundamentals, provide crucial and comprehensive insights into the networks. Despite their informative nature, on-chain data have not been utilized in reinforcement learning (RL)-based systems for cryptocurrency (crypto) portfolio management (PM). An intriguing subject is the extent to which the utilization of on-chain data can enhance an RL-based system'…
Zhenhan Huang, Fumihide Tanaka
arXiv · arXiv q-fin · 2026
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…
Jan Novotny
arXiv · arXiv q-fin · 2025
In this paper, we describe a novel agent-based approach for modelling the transaction cost of buying or selling an asset in financial markets, e.g., to liquidate a large position as a result of a margin call to meet financial obligations. The simple act of buying or selling in the market causes a price impact and there is a cost described as liquidity risk. For example, when selling a large order, there is market sli…
Perukrishnen Vytelingum, Rory Baggott, Namid Stillman, Jianfei Zhang, Dingqiu Zhu
arXiv · arXiv q-fin · 2024
The over-the-counter (OTC) government bond markets are characterised by their bilateral trading structures, which pose unique challenges to understanding and ensuring market stability and liquidity. In this paper, we develop a bespoke ABM that simulates market-maker interactions within a stylised government bond market. The model focuses on the dynamics of liquidity and stability in the secondary trading of governmen…
Alicia Vidler, Toby Walsh
arXiv · arXiv q-fin · 2021
We examine how the introduction of concentrated liquidity has changed the liquidity provision market in automated market makers such as Uniswap. To this end, we compare average liquidity provider returns from trading fees before and after its introduction. Furthermore, we quantify the performance of a number of fundamental concentrated liquidity strategies using historical trade data. We estimate their possible retur…
Robin Fritsch
arXiv · arXiv · 2022
Emerging markets such as India provide investors with returns far greater than those in developed markets; taking the average returns from the period 1995 to 2014 the returns are 4.714% to 3.276% of the developed market. The majority of emerging markets commenced joining with the capital market of the world, thus allowing a huge inflow of capital which in turn paved the path for economic growth. Even though the emerg…
Ganapathy G Gangadharan, N. Suresh
arXiv · arXiv · 2019
The continuous-time version of Kyle's (1985) model is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most important being that by setting a modest fee conditional of the order flow, the market maker is able to obtain a profit of the or…
Knut Aase, Bernt Øksendal
arXiv · arXiv · 2013
Designed to compete with fiat currencies, bitcoin proposes it is a crypto-currency alternative. Bitcoin makes a number of false claims, including: solving the double-spending problem is a good thing; bitcoin can be a reserve currency for banking; hoarding equals saving, and that we should believe bitcoin can expand by deflation to become a global transactional currency supply. Bitcoin's developers combine technical i…
Brian P. Hanley
arXiv · arXiv · 2011
This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a multi-factor housing asset pricing model. In that model, we evaluate whether the market factor as well as other measures of risk, including…
Karl Case, John Cotter, Stuart Gabriel
arXiv · arXiv q-fin · 2026
This paper studies how market informedness affects market makers' profitability in a computational market environment with heterogeneous learning agents. We develop an agent-based market model in which market makers differ in their information sets and inventory-risk aversion, prices form endogenously, fundamental values evolve exogenously, and market-taker order flow follows a state-dependent self-exciting process. …
Konrad Ochędzan, Nino Antulov-Fantulin
arXiv · arXiv q-fin · 2025
Financial markets are complex systems characterized by high statistical noise, nonlinearity, volatility, and constant evolution. Thus, modeling them is extremely hard. Here, we address the task of generating realistic and responsive Limit Order Book (LOB) market simulations, which are fundamental for calibrating and testing trading strategies, performing market impact experiments, and generating synthetic market data…
Leonardo Berti, Bardh Prenkaj, Paola Velardi
arXiv · arXiv q-fin · 2022
There is substantial empirical evidence showing the fundamental portfolio outperforming the market portfolio. Here a theoretical foundation is laid that supports this empirical research. Assuming stock prices revert around fundamental prices with sufficient strength and symmetry, the fundamental portfolio outperforms the market portfolio in expectation. If reversion toward the fundamental price is not sufficiently st…
Hayden Brown
arXiv · arXiv q-fin · 2017
On a daily investment decision in a security market, the price earnings (PE) ratio is one of the most widely applied methods being used as a firm valuation tool by investment experts. Unfortunately, recent academic developments in financial econometrics and machine learning rarely look at this tool. In practice, fundamental PE ratios are often estimated only by subjective expert opinions. The purpose of this research…
Haizhen Wang, Ratthachat Chatpatanasiri, Pairote Sattayatham
arXiv · arXiv q-fin · 2016
We utilize a fundamentally different model of trading costs to look at the effect of the opening of the Hong Kong Shanghai Connect that links the stock exchanges in the two cities, arguably the biggest event in international business and finance since Christopher Columbus set sail for India. We design a novel methodology that compensates for the lack of data on trading costs in China. We estimate trading costs across…
Ravi Kashyap