Publications
98 results found
Cont R, 2001, Empirical properties of asset returns: stylized facts and statistical issues, Quantitative Finance, Vol: 1, Pages: 223-236
We present a set of stylized empirical facts emerging from the statistical analysis of price variations in various types of financial markets. We first discuss some general issues common to all statistical studies of financial time series. Various statistical properties of asset returns are then described: distributional properties, tail properties and extreme fluctuations, pathwise regularity, linear and nonlinear dependence of returns in time and across stocks. Our description emphasizes properties common to a wide variety of markets and instruments. We then show how these statistical properties invalidate many of the common statistical approaches used to study financial data sets and examine some of the statistical problems encountered in each case.
Cont R, Bouchaud JP, 2000, Herd behavior and aggregate fluctuations in financial markets, MACROECONOMIC DYNAMICS, Vol: 4, Pages: 170-196, ISSN: 1365-1005
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- Citations: 538
Cont R, Bouchaud J-P, 2000, Herd behavior and aggregate fluctuations in financial markets, Macroeconomic Dynamics, Vol: 4, Pages: 170-196
We present a simple model of a stock market where a random communicationstructure between agents gives rise to a heavy tails in the distribution ofstock price variations in the form of an exponentially truncated power-law,similar to distributions observed in recent empirical studies of high frequencymarket data. Our model provides a link between two well-known market phenomena:the heavy tails observed in the distribution of stock market returns on onehand and 'herding' behavior in financial markets on the other hand. Inparticular, our study suggests a relation between the excess kurtosis observedin asset returns, the market order flow and the tendency of market participantsto imitate each other.
Bouchaud J-P, Sagna N, Cont R, et al., 1999, Phenomenology of the Interest Rate Curve, Applied Mathematical Finance, Vol: 6, Pages: 209-232
This paper contains a phenomenological description of the whole U.S. forwardrate curve (FRC), based on an data in the period 1990-1996. We find that theaverage FRC (measured from the spot rate) grows as the square-root of thematurity, with a prefactor which is comparable to the spot rate volatility.This suggests that forward rate market prices include a risk premium,comparable to the probable changes of the spot rate between now and maturity,which can be understood as a `Value-at-Risk' type of pricing. Theinstantaneous FRC however departs form a simple square-root law. The distortionis maximum around one year, and reflects the market anticipation of a localtrend on the spot rate. This anticipated trend is shown to be calibrated on thepast behaviour of the spot itself. We show that this is consistent with thevolatility `hump' around one year found by several authors (and which weconfirm). Finally, the number of independent components needed to interpretmost of the FRC fluctuations is found to be small. We rationalize this byshowing that the dynamical evolution of the FRC contains a stabilizing secondderivative (line tension) term, which tends to suppress short scale distortionsof the FRC. This shape dependent term could lead, in principle, to arbitrage.However, this arbitrage cannot be implemented in practice because oftransaction costs. We suggest that the presence of transaction costs (or othermarket `imperfections') is crucial for model building, for a much wider classof models becomes eligible to represent reality.
Laloux L, Potters M, Cont R, et al., 1999, Are financial crashes predictable?, EUROPHYSICS LETTERS, Vol: 45, Pages: 1-5, ISSN: 0295-5075
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- Citations: 39
Potters M, Cont R, Bouchaud JP, 1998, Financial markets as adaptive systems, EUROPHYSICS LETTERS, Vol: 41, Pages: 239-244, ISSN: 0295-5075
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- Citations: 75
Bouchaud J-P, Cont R, 1998, A Langevin Approach to Stock Market Fluctuations and Crashes, European Physical Journal B, Vol: 6, Pages: 543-550
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription. We emphasize the importance of feedback effects of price variations onto themselves. Risk aversion, in particular, leads to an up-downsymmetry breaking term which is responsible for crashes, where `panic' is self reinforcing. It is also responsible for the sudden collapse of speculative bubbles. Interestingly, these crashes appear as rare, `activated' events, and have an exponentially small probability of occurence. We predict that the shape of the falldown of the price during a crash should be logarithmic. The normal regime, where the stock price exhibits behavior similar to that of a random walk, however reveals non trivial correlations on different time scales, in particular on the time scale over which operators perceive a change of trend.
Sornette D, Cont R, 1997, Convergent multiplicative processes repelled from zero: Power laws and truncated power laws, JOURNAL DE PHYSIQUE I, Vol: 7, Pages: 431-444, ISSN: 1155-4304
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- Citations: 196
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