arXiv subjects

Jean-Philippe Bouchaud

Publications and source records attributed to Jean-Philippe Bouchaud.

At least 217 records · Page 12Linked to original sources

arXiv2005

Trend followers lose more often than they gain

We solve exactly a simple model of trend following strategy, and obtain the analytical shape of the profit per trade distribution. This distribution is non trivial and has an option like, asymmetric structure. The degree of asymmetry depends continuously on the parameters of the strategy and on the volatility of the traded asset. While the average gain per trade is always exactly zero, the fraction f of winning trades decreases from f=1/2 for small volatility to f=0 for high volatility, showing that this winning probability does not give any information on the reliability of the strategy but is indicative of the trading style.

physics.data-an↗

arXiv2005

Subdiffusion and dynamical heterogeneities in a lattice glass model

We study a kinetically constrained lattice glass model in which continuous local densities are randomly redistributed on neighbouring sites with a kinetic constraint that inhibits the process at high densities, and a random bias accounting for attractive or repulsive interactions. The full steady-state distribution can be computed exactly in any space dimension d. Dynamical heterogeneities are characterized by a length scale that diverges when approaching the critical density. The glassy dynamics of the model can be described as a reaction-diffusion process for the mobile regions. The motion of mobile regions is found to be subdiffusive, for a large range of parameters, due to a self-induced trapping mechanism.

cond-mat.dis-nn↗

arXiv2005

Theory of collective opinion shifts: from smooth trends to abrupt swings

We unveil collective effects induced by imitation and social pressure by analyzing data from three different sources: birth rates, sales of cell phones and the drop of applause in concert halls. We interpret our results within the framework of the Random Field Ising Model, which is a threshold model for collective decisions accounting both for agent heterogeneity and social imitation. Changes of opinion can occur either abruptly or continuously, depending on the importance of herding effects. The main prediction of the model is a scaling relation between the height h of the speed of variation peak and its width $w$ of the form h ~ w^{-kappa}, with kappa = 2/3 for well connected populations. Our three sets of data are compatible with such a prediction, with kappa ~ 0.62 for birth rates, kappa ~ 0.71 for cell phones and kappa ~ 0.64 for clapping. In this last case, we in fact observe that some clapping samples end discontinuously (w=0), as predicted by the model for strong enough imitation.

cond-mat.stat-mech↗

arXiv2005

Non-linear susceptibility in glassy systems: a probe for cooperative dynamical length scales

We argue that for generic systems close to a critical point, an extended Fluctuation-Dissipation relation connects the low frequency non-linear (cubic) susceptibility to the four-point correlation function. In glassy systems, the latter contains interesting information on the heterogeneity and cooperativity of the dynamics. Our result suggests that if the abrupt slowing down of glassy materials is indeed accompanied by the growth of a cooperative length ell, then the non-linear, 3 omega response to an oscillating field should substantially increase and give direct information on the temperature (or density) dependence of ell. The analysis of the non-linear compressibility or the dielectric susceptibility in supercooled liquids, or the non-linear magnetic susceptibility in spin-glasses, should give access to a cooperative length scale, that grows as the temperature is decreased or as the age of the system increases. Our theoretical analysis holds exactly within the Mode-Coupling Theory of glasses.

cond-mat.stat-mech↗

arXiv2005

The Dynamics of Financial Markets -- Mandelbrot's multifractal cascades, and beyond

This is a short review in honor of B. Mandelbrot's 80st birthday, to appear in W ilmott magazine. We discuss how multiplicative cascades and related multifractal ideas might be relevant to model the main statistical features of financial time series, in particular the intermittent, long-memory nature of the volatility. We describe in details the Bacry-Muzy-Delour multifractal random walk. We point out some inadequacies of the current models, in particular concerning time reversal symmetry, and propose an alternative family of multi-timescale models, intermediate between GARCH models and multifractal models, that seem quite promising.

cond-mat.other↗

arXiv2004

What do we learn from the shape of the dynamical susceptibility of glass-formers?

We compute analytically and numerically the four-point correlation function that characterizes non-trivial cooperative dynamics in glassy systems within several models of glasses: elasto-plastic deformations, mode-coupling theory (MCT), collectively rearranging regions (CRR), diffusing defects and kinetically constrained models (KCM). Some features of the four-point susceptibility chi_4(t) are expected to be universal. at short times we expect an elastic regime characterized by a t or sqrt{t} growth. We find both in the beta, and the early alpha regime that chi_4 sim t^mu, where mu is directly related to the mechanism responsible for relaxation. This regime ends when a maximum of chi_4 is reached at a time t=t^* of the order of the relaxation time of the system. This maximum is followed by a fast decay to zero at large times. The height of the maximum also follows a power-law, chi_4(t^*) sim t^{*lambda}. The value of the exponents mu and lambda allows one to distinguish between different mechanisms. For example, freely diffusing defects in d=3 lead to mu=2 and lambda=1, whereas the CRR scenario rather predicts either mu=1 or a logarithmic behaviour depending on the nature of the nucleation events, and a logarithmic behaviour of chi_4(t^*). MCT leads to mu=b and lambda =1/gamma, where b and gamma are the standard MCT exponents. We compare our theoretical results with numerical simulations on a Lennard-Jones and a soft-sphere system. Within the limited time-scales accessible to numerical simulations, we find that the exponent mu is rather small, mu < 1, with a value in reasonable agreement with the MCT predictions.

cond-mat.dis-nn↗

arXiv2004

Experts' earning forecasts: bias, herding and gossamer information

We study the statistics of earning forecasts of US, EU, UK and JP stocks during the period 1987-2004. We confirm, on this large data set, that financial analysts are on average over-optimistic and show a pronounced herding behavior. These effects are time dependent, and were particularly strong in the early nineties and during the Internet bubble. We furthermore find that their forecast ability is, in relative terms, quite poor and comparable in quality, a year ahead, to the simplest `no change' forecast. As a result of herding, analysts agree with each other five to ten times more than with the actual result. We have shown that significant differences exist between US stocks and EU stocks, that may partly be explained as a company size effect. Interestingly, herding effects appear to be stronger in the US than in the Eurozone. Finally, we study the correlation of errors across stocks and show that significant sectorization occurs, some sectors being easier to predict than others. These results add to the list of arguments suggesting that the tenets of Efficient Market Theory are untenable.

cond-mat.other↗

arXiv2004

Glassy dynamics: mean-field `landscape' pictures versus growing length scale scenarii

This is a short review on the compatibility between (a) mean-field, mode-coupling theories of the glass transition, where potential energy landscape ideas are natural, and (b) the necessity of describing the slowing down of glassy materials in terms of a growing cooperative length, absent from mean-field descriptions. We summarize some of the outstanding questions that remain before we can say we understand why glasses do not flow.

cond-mat.soft↗

arXiv2004

Dynamics of granular avalanches caused by local perturbations

Surface flow of granular material is investigated within a continuum approach in two dimensions. The dynamics is described by a non-linear coupling between the two `states' of the granular material: a mobile layer and a static bed. Following previous studies, we use mass and momentum conservation to derive St-Venant like equations for the evolution of the thickness R of the mobile layer and the profile Z of the static bed. This approach allows the rheology in the flowing layer to be specified independently, and we consider in details the two following models: a constant plug flow and a linear velocity profile. We study and compare these models for non-stationary avalanches triggered by a localized amount of mobile grains on a static bed of constant slope. We solve analytically the non-linear dynamical equations by the method of characteristics. This enables us to investigate the temporal evolution of the avalanche size, amplitude and shape as a function of model parameters and initial conditions. In particular, we can compute their large time behavior as well as the condition for the formation of shocks.

cond-mat.stat-mech↗

arXiv2004

Temperature and Disorder Chaos in Low Dimensional Directed Paths

The responses of a $1+ε$ dimensional directed path to temperature and to potential variations are calculated exactly, and are governed by the same scaling form. The short scale decorrelation (strong correlation regime) leads to the overlap length predicted by heuristic approaches; its temperature dependence and large absolute value agree with scaling and numerical observations. Beyond the overlap length (weak correlation regime), the correlation decays algebraically. A clear physical mechanism explains the behavior in each case: the initial decorrelation is due to `fragile droplets,' which contribute to the entropy fluctuations as $\sqrt{T}$, while the residual correlation results from accidental intersections of otherwise uncorrelated configurations.

cond-mat.dis-nn↗

arXiv2004

Diverging length scale and upper critical dimension in the Mode-Coupling Theory of the glass transition

We show that the glass transition predicted by the Mode-Coupling Theory (MCT) is a critical phenomenon with a diverging length and time scale associated to the cooperativity of the dynamics. We obtain the scaling exponents nu and z that relate space and time scales to the distance from criticality, as well as the scaling form of the critical four-point correlation function. However, both these predictions and other well known MCT results are mean-field in nature and are thus expected to change below the upper critical dimension dc=6, as suggested by different forms of the Ginzburg criterion.

cond-mat.stat-mech↗

arXiv2004

"Stiff" Field Theory of Interest Rates and Psychological Future Time

The simplest field theory description of the multivariate statistics of forward rate variations over time and maturities, involves a quadratic action containing a gradient squared rigidity term. However, this choice leads to a spurious kink (infinite curvature) of the normalized correlation function for coinciding maturities. Motivated by empirical results, we consider an extended action that contains a squared Laplacian term, which describes the bending stiffness of the FRC. With the extra ingredient of a `psychological' future time, describing how the perceived time between events depends on the time in the future, our theory accounts extremely well for the phenomenology of interest rate dynamics.

cond-mat.other↗

arXiv2003

Option pricing and hedging with minimum local expected shortfall

We propose a versatile Monte-Carlo method for pricing and hedging options when the market is incomplete, for an arbitrary risk criterion (chosen here to be the expected shortfall), for a large class of stochastic processes, and in the presence of transaction costs. We illustrate the method on plain vanilla options when the price returns follow a Student-t distribution. We show that in the presence of fat-tails, our strategy allows to significantly reduce extreme risks, and generically leads to low Gamma hedging. Similarly, the inclusion of transaction costs reduces the Gamma of the optimal strategy.

cond-mat↗

arXiv2003

Fluctuations and response in financial markets: the subtle nature of `random' price changes

Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to super-diffusion (or persistence), and mean reverting limit orders that lead to sub-diffusion (or anti-persistence). We define and study a model where the price, at any instant, is the result of the impact of all past trades, mediated by a non constant `propagator' in time that describes the response of the market to a single trade. Within this model, the market is shown to be, in a precise sense, at a critical point, where the price is purely diffusive and the average response function almost constant. We find empirically, and discuss theoretically, a fluctuation-response relation. We also discuss the fraction of truly informed market orders, that correctly anticipate short term moves, and find that it is quite small.

cond-mat.stat-mech↗

arXiv2003

Self-referential behaviour, overreaction and conventions in financial markets

We study a generic model for self-referential behaviour in financial markets, where agents attempt to use some (possibly fictitious) causal correlations between a certain quantitative information and the price itself. This correlation is estimated using the past history itself, and is used by a fraction of agents to devise active trading strategies. The impact of these strategies on the price modify the observed correlations. A potentially unstable feedback loop appears and destabilizes the market from an efficient behaviour. For large enough feedbacks, we find a `phase transition' beyond which non trivial correlations spontaneously set in and where the market switches between two long lived states, that we call conventions. This mechanism leads to overreaction and excess volatility, which may be considerable in the convention phase. A particularly relevant case is when the source of information is the price itself. The two conventions then correspond then to either a trend following regime or to a contrarian (mean reverting) regime. We provide some empirical evidence for the existence of these conventions in real markets, that can last for several decades.

cond-mat↗

arXiv2003

Multiple time scales in volatility and leverage correlations: An stochastic volatility model

Financial time series exhibit two different type of non linear correlations: (i) volatility autocorrelations that have a very long range memory, on the order of years, and (ii) asymmetric return-volatility (or `leverage') correlations that are much shorter ranged. Different stochastic volatility models have been proposed in the past to account for both these correlations. However, in these models, the decay of the correlations is exponential, with a single time scale for both the volatility and the leverage correlations, at variance with observations. We extend the linear Ornstein-Uhlenbeck stochastic volatility model by assuming that the mean reverting level is itself random. We find that the resulting three-dimensional diffusion process can account for different correlation time scales. We show that the results are in good agreement with a century of the Dow Jones index daily returns (1900-2000), with the exception of crash days.

cond-mat.stat-mech↗

arXiv2002

Statistical models for company growth

We study Sutton's `microcanonical' model for the internal organisation of firms, that leads to non trivial scaling properties for the statistics of growth rates. We show that the growth rates are asymptotically Gaussian in this model, at variance with empirical results. We also obtain the conditional distribution of the number and size of sub-sectors in this model. We formulate and solve an alternative model, based on the assumption that the sector sizes follow a power-law distribution. We find in this new model both anomalous scaling of the variance of growth rates and non Gaussian asymptotic distributions. We give some testable predictions of the two models that would differentiate them further. We also discuss why the growth rate statistics at the country level and at the company level should be identical.

cond-mat↗

arXiv2002

More statistical properties of order books and price impact

We investigate present some new statistical properties of order books. We analyse data from the Nasdaq and investigate (a) the statistics of incoming limit order prices, (b) the shape of the average order book, and (c) the typical life time of a limit order as a function of the distance from the best price. We also determine the `price impact' function using French and British stocks, and find a logarithmic, rather than a power-law, dependence of the price response on the volume. The weak time dependence of the response function shows that the impact is, surprisingly, quasi-permanent, and suggests that trading itself is interpreted by the market as new information.

cond-mat↗