Intraday Patterns in the Cross-section of Stock Returns

Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40 trading days. Volume, order imbalance, volatility, and bid-ask spreads exhibit similar patterns, but do not explain the return patterns. We also show that short-term return reversal is driven by temporary liquidity imbalances lasting less than an hour and bid-ask bounce. Timing trades can reduce execution costs by the equivalent of the effective spread

Decomposing Intraday Dependence in Currency Markets: Evidence from the AUD/USD Spot Market

The local Hurst exponent, a measure employed to detect the presence of dependence in a time series, may also be used to investigate the source of intraday variation observed in the returns in foreign exchange markets. Given that changes in the local Hurst exponent may be due to either a time-varying range, or standard deviation, or both of these simultaneously, values for the range, standard deviation and local Hurst exponent are recorded and analyzed separately. To illustrate this approach, a high-frequency data set of the spot Australian dollar/U.S. dollar provides evidence of the returns distribution across the 24-hour trading day with time-varying dependence and volatility clearly aligning with the opening and closing of markets. This variation is attributed to the effects of liquidity and the price-discovery actions of dealers.Comment: 3 Figures, 3 Tables, 28 page

Time scales involved in market emergence

In addressing the question of the time scales characteristic for the market formation, we analyze high frequency tick-by-tick data from the NYSE and from the German market. By using returns on various time scales ranging from seconds or minutes up to two days, we compare magnitude of the largest eigenvalue of the correlation matrix for the same set of securities but for different time scales. For various sets of stocks of different capitalization (and the average trading frequency), we observe a significant elevation of the largest eigenvalue with increasing time scale. Our results from the correlation matrix study go in parallel with the so-called Epps effect. There is no unique explanation of this effect and it seems that many different factors play a role here. One of such factors is randomness in transaction moments for different stocks. Another interesting conclusion to be drawn from our results is that in the contemporary markets the emergence of significant correlations occurs on time scales much smaller than in the more distant history.Comment: 13 page

Will the US Economy Recover in 2010? A Minimal Spanning Tree Study

We calculated the cross correlations between the half-hourly times series of the ten Dow Jones US economic sectors over the period February 2000 to August 2008, the two-year intervals 2002--2003, 2004--2005, 2008--2009, and also over 11 segments within the present financial crisis, to construct minimal spanning trees (MSTs) of the US economy at the sector level. In all MSTs, a core-fringe structure is found, with consumer goods, consumer services, and the industrials consistently making up the core, and basic materials, oil and gas, healthcare, telecommunications, and utilities residing predominantly on the fringe. More importantly, we find that the MSTs can be classified into two distinct, statistically robust, topologies: (i) star-like, with the industrials at the center, associated with low-volatility economic growth; and (ii) chain-like, associated with high-volatility economic crisis. Finally, we present statistical evidence, based on the emergence of a star-like MST in Sep 2009, and the MST staying robustly star-like throughout the Greek Debt Crisis, that the US economy is on track to a recovery.Comment: elsarticle class, includes amsmath.sty, graphicx.sty and url.sty. 68 pages, 16 figures, 8 tables. Abridged version of the manuscript presented at the Econophysics Colloquim 2010, incorporating reviewer comment

Understanding the price of volatility risk in carry trades

This paper investigates the cross-sectional pricing ability of the short- and long-run components of global foreign exchange (FX) volatility for carry trade returns. We find a negative and statistically significant factor risk price for the long-run component, but no significant pricing effect due to the short-run volatility component. We also document that the dynamics of the long-run component of global FX volatility are related to US macroeconomic fundamentals. Our results are robust to various parametrizations of the volatility models used to obtain the volatility components and they are invariant to alternative asset pricing testing methodologies and sample periods

Improving risk-adjusted performance in high frequency trading using interval type-2 fuzzy logic

In this paper, we investigate the ability of higher order fuzzy systems to handle increased uncertainty, mostly induced by the market microstructure noise inherent in a high frequency trading (HFT) scenario. Whilst many former studies comparing type-1 and type-2 Fuzzy Logic Systems (FLSs) focus on error reduction or market direction accuracy, our interest is predominantly risk-adjusted performance and more in line with both trading practitioners and upcoming regulatory regimes. We propose an innovative approach to design an interval type-2 model which is based on a generalisation of the popular type-1 ANFIS model. The significance of this work stems from the contributions as a result of introducing type-2 fuzzy sets in intelligent trading algorithms, with the objective to improve the risk-adjusted performance with minimal increase in the design and computational complexity. Overall, the proposed ANFIS/T2 model scores significant performance improvements when compared to both standard ANFIS and Buy-and-Hold methods. As a further step, we identify a relationship between the increased trading performance benefits of the proposed type-2 model and higher levels of microstructure noise. The results resolve a desirable need for practitioners, researchers and regulators in the design of expert and intelligent systems for better management of risk in the field of HFT

Toward the Development of Load Transfer Efficiency Evaluation of Rigid Pavements by a Rolling Wheel Deflectometer

The jointed rigid pavement is currently evaluated by the Falling weight deflectometer which is rather slow for the testing of the jointed pavements. Continuous nondestructive evaluation of rigid pavements with a rolling wheel deflectometer can be used to measure the load transfer and is investigated. Load transfer is an important indicator of the rigid pavement's condition and this is the primary factor which is studied. Continuous data from experimental measurements across a joint allows for the determination of not only the load transfer efficiency provided parameters characterizing the pavement is known. A three-dimensional semi-analytical model was implemented for simulating the pavement response near a joint and used for interpretation and verification of the experimental data. Results show that this development is promising for the use of a rolling wheel deflectometer for rapid evaluation of joints

Isolation and characterization of neural crest progenitors from adult dorsal root ganglia

After peripheral nerve injury, the number of sensory neurons in the adult dorsal root ganglia (DRG) is initially reduced but recovers to a normal level several months later. The mechanisms underlying the neuronal recovery after injury are not clear. Here, we showed that in the DRG explant culture, a subpopulation of cells that emigrated out from adult rat DRG expressed nestin and p75 neurotrophin receptor and formed clusters and spheres. They differentiated into neurons, glia, and smooth muscle cells in the presence or absence of serum and formed secondary and tertiary neurospheres in cloning assays. Molecular expression analysis demonstrated the characteristics of neural crest progenitors and their potential for neuronal differentiation by expressing a set of well-defined genes related to adult stem cells niches and neuronal fate decision. Under the influence of neurotrophic factors, some of these progenitors gave rise to neuropeptide-expressing cells and protein zero-expressing Schwann cells. In a 5-bromo-2′-deoxyuridine chasing study, we showed that these progenitors likely originate from satellite glial cells. Our study suggests that a subpopulation of glia in adult DRG is likely to be progenitors for neurons and glia and may play a role in neurogenesis after nerve injury. ©AlphaMed Press

Fundamental limits of repeaterless quantum communications

Quantum communications promises reliable transmission of quantum information, efficient distribution of entanglement and generation of completely secure keys. For all these tasks, we need to determine the optimal point-to-point rates that are achievable by two remote parties at the ends of a quantum channel, without restrictions on their local operations and classical communication, which can be unlimited and two-way. These two-way assisted capacities represent the ultimate rates that are reachable without quantum repeaters. Here, by constructing an upper bound based on the relative entropy of entanglement and devising a dimension-independent technique dubbed ‘teleportation stretching’, we establish these capacities for many fundamental channels, namely bosonic lossy channels, quantum-limited amplifiers, dephasing and erasure channels in arbitrary dimension. In particular, we exactly determine the fundamental rate-loss tradeoff affecting any protocol of quantum key distribution. Our findings set the limits of point-to-point quantum communications and provide precise and general benchmarks for quantum repeaters