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Synchronicity, Instant Messaging and Performance among Financial Traders

October 5, 2011 Comments (0)

Successful animal systems often manage risk through synchronous behavior that spontaneously arises without leadership. In critical human systems facing risk, such as financial markets or military operations, our understanding of the benefits associated to synchronicity is nascent but promising. Building on previous work illuminating commonalities between ecological and human systems, we compare the activity patterns of individual financial traders with the simultaneous activity of other...

Reconstruction of financial network for robust estimation of systemic risk

October 5, 2011 Comments (0)

In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct credit networks severely underestimate the risk of contagion by assuming a trivial (fully connected) topology, a type of network structure which can be very different from the one empirically observed. We propose an efficient message-passing algorithm to...

The Small and Large Time Implied Volatilities in the Minimal Market Model

October 5, 2011 Comments (0)

This paper derives explicit formulas for both the small and large time limits of the implied volatility i 49c n the minimal market model. It is shown that interest rates do impact on the implied volatility in the long run even though they are negligible in the short time limit.

User-level sentiment analysis incorporating social networks

October 5, 2011 Comments (0)

We show that information about social relationships can be used to improve user-level sentiment analysis. The main motivation behind our approach is that users that are somehow "connected" may be more likely to hold similar opinions; therefore, relationship information can complement what we can extract about a user's viewpoints from their utterances. Employing Twitter as a source for our experimental data, and working within a semi-supervised framework, we propose models that are induced...

Evolutionary Model of Non-Durable Markets

October 5, 2011 Comments (0)

Presented is an evolutionary model of consumer non-durable markets, which is an extension of a previously published paper on consumer durables. The model suggests that the repurchase process is governed by preferential growth. Applying statistical methods it can be shown that in a competitive market the mean price declines according to an exponential law towards a natural price, while the corresponding price distribution is approximately given by a Laplace distribution for independent price...

Stability of Climate Networks with Time

October 5, 2011 Comments (0)

We construct and analyze climate networks based on daily satellite measurements of temperatures and geopotential heights. We show that these networks are stable during time and are similar over different altitudes. Each link in our network is stable with typical 15% variabilit 5aa y. The entire hierarchy of links is about 80% consistent during time. We show that about half of this stability is due to the spatial 2D embedding of the network, and half is due to physical coupling mechanisms. The...

Temporal effects in the growth of networks

October 5, 2011 Comments (0)

We show that to explain the growth of the citation network by preferential attachment (PA), one has to accept that individual nodes exhibit heterogeneous fitness values that decay with time. While previous PA-based models assumed either heterogeneity or decay in isolation, we propose a simple analytically treatable model that combines these two factors. Depending on the input assumptions, the resulting degree distribution shows an exponential, log-normal or power-law decay, which makes the...

Equilibrium model of rational and noise traders: bifurcations to endogenous bubbles

October 5, 2011 Comments (0)

We introduce a model of financial bubbles with two assets (risky and risk-less), in which rational investors and noise traders co-exist. Rational investors form continuously evolving expectations on the return and risk of a risky asset and maximize their expected utility with respect to their allocation on the risky asset versus the risk-free asset. Noise traders are subjected to social imitation and follow momentum trading. We find the existence of a set of bifurcations controlled by the...

The Food Crises: A quantitative model of food prices including speculators and ethanol conversion

October 5, 2011 Comments (0)

Recent increases in basic food prices are severely impacting vulnerable populations worldwide. Proposed causes such as shortages of grain due to adverse weather, increasing meat consumption in China and India, conversion of corn to ethanol in the US, and investor speculation on commodity markets lead to widely differing implications for policy. A lack of clarity about which factors are responsible reinforces policy inaction. Here, for the first time, we construct a dynamic model that...

Investment Volatility: A Critique of Standard Beta Estimation and a Simple Way Forward

October 5, 2011 Comments (0)

Beta is a widely used quantity in investment analysis. We review the co 7d8 mmon interpretations that are applied to beta in finance and show that the standard method of estimation - least squares regression - is inconsistent with these interpretations. We present the case for an alternative beta estimator which is more appropriate, as well as being easier to understand and to calculate. Unlike regression, the line fit we propose treats both variables in the same way. Remarkably, it provides a...