Capital mobility in a dynastic framework

This paper studies the pattern of capital mobility within atwo-country dynastic model in which each country is exogenouslycharacterized by its degree of altruism toward children. Thesteady-state welfare implications of restricted as well as unrestrictedcapital mobility are established. It is shown that world integrationincreases the steady-state welfare of the more altruistic capitalexporting country and can either increase or reduce the steady-statewelfare of the less altruistic capital importing country.     

Quadratic Hawkes processes for financial prices

We introduce and establish the main properties of QHawkes (‘Quadratic’ Hawkes) models. QHawkes models generalize the Hawkes price models introduced in Bacry and Muzy [Quant. Finance, 2014, 14(7), 1147–1166], by allowing feedback effects in the jump intensity that are linear and quadratic in past returns. Our model exhibits two main properties that we believe are crucial in the modelling and the understanding of the volatility process: first, the model is time-reversal asymmetric, similar to financial markets whose time evolution has a preferred direction. Second, it generates a multiplicative, fat-tailed volatility process, that we characterize in detail in the case of exponentially decaying kernels, and which is linked to Pearson diffusions in the continuous limit. Several other interesting properties of QHawkes processes are discussed, in particular the fact that they can generate long memory without necessarily being at the critical point. A non-parametric fit of the QHawkes model on NYSE stock data shows that the off-diagonal component of the quadratic kernel indeed has a structure that standard Hawkes models fail to reproduce. We provide numerical simulations of our calibrated QHawkes model which is indeed seen to reproduce, with only a small amount of quadratic non-linearity, the correct magnitude of fat-tails and time reversal asymmetry seen in empirical time series.     

Applying hedging strategies to estimate model risk and provision calculation

We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions into contributions coming from different market participants and study how their behaviour is interconnected. We find evidence for the following. (1) Brokers are very heterogeneous in liquidity provision—some appear to be primarily liquidity providers while others are primarily liquidity takers. (2) The behaviour of brokers is strongly conditioned on the actions of other brokers. In contrast, brokers are only weakly influenced by the impact of their own previous orders. (3) The total impact of market orders is the result of a subtle compensation between the same broker pushing the price in one direction and the liquidity provision of other brokers pushing it in the opposite direction. These results enforce the picture of market dynamics being the result of the competition between heterogeneous participants, interacting to form a complex market ecology.     

Market impact with multi-timescale liquidity

Finite-memory effects on the dynamics of the latent order book can be accounted for by allowing finite cancellation and deposition rates within a continuous reaction-diffusion set-up     

Color blind is not color neutral: testing differences and affirmative action

Employers or universities determine the qualifications of applicantsbased on the results of a test. Members of socioeconomicallydisadvantaged groups tend to score less well than equally qualifiedmembers of other groups. As a result, color blind practicesdiscriminate against disadvantaged groups. This discriminationmay persist even if rational firms realize that the test is(statistically) biased. Furthermore, test bias against a groupis consistent with the test overpredicting group members' performance.An affirmative action program may be needed to achieve color-neutralresults.     

Industrial groups and territories: the case of Matra-Marconi-Space in Toulouse

This article examines the relations between industrial groupsand territory (defined as the overlapping of geographical andorganisational positioning). It tries to isolate the key factorswhich determine the way in which industrial groups use territoryin business activities - inparticular, the factors linked tothe transformation of group productive organisation, and thesocio-economic space in which they are located. Thus, the traditionalallocation of resources approach is replaced by one that concentrateson the creation of resources. For some industrial groups, businesslocations provide not only specific human resources, but alsovarious kinds of technological knowledge and skilled servicecapacity, as well as top-level training facilities. The crucialimportance of territory is shown in a case-study of the Matra-Marconi-Spacecompany based in Toulouse.     

Of songs and men: a model for multiple choice with herding

We propose a generic model for multiple choice situations in the presence of herding and compare it with recent empirical results from a Web-based music market experiment. The model predicts a phase transition between a weak imitation phase and a strong imitation, ‘fashion’ phase, where choices are driven by peer pressure and the ranking of individual preferences is strongly distorted at the aggregate level. The model can be calibrated to reproduce the main experimental results of Salganik et al. (Science, 311, 854–856 (2006)); we show in particular that the value of the social influence parameter can be estimated from the data. In one of the experimental situation, this value is found to be close to the critical value of the model.     

Random walks,liquidity molasses and critical response in financial markets

Stock prices are observed to be random walks in time despite a strong, long-term memory in the signs of trades (buys or sells). Lillo and Farmer have recently suggested that these correlations are compensated by opposite long-ranged fluctuations in liquidity, with an otherwise permanent market impact, challenging the scenario proposed in Quantitative Finance, 2004, 4, 176, where the impact is instead transient, with a power-law decay in time. The exponent of this decay is precisely tuned to a critical value, ensuring simultaneously that prices are diffusive on long time scales and that the impact function is nearly lag independent. We provide new analysis of empirical data that confirm and make more precise our previous claims. We show that the power-law decay of the bare impact function comes both from an excess flow of limit order opposite to the market order flow, and to a systematic anti-correlation of the bid–ask motion between trades, two effects that create a ‘liquidity molasses’ which dampens market volatility.