arXiv subjects

Michael Benzaquen

Publications and source records attributed to Michael Benzaquen.

At least 55 records · Page 3Linked to original sources

arXiv2021

Economic Crises in a Model with Capital Scarcity and Self-Reflexive Confidence

In the General Theory, Keynes remarked that the economy's state depends on expectations, and that these expectations can be subject to sudden swings. In this work, we develop a multiple equilibria behavioural business cycle model that can account for demand or supply collapses due to abrupt drops in consumer confidence, which affect both consumption propensity and investment. We show that, depending on the model parameters, four qualitatively different outcomes can emerge, characterised by the frequency of capital scarcity and/or demand crises. In the absence of policy measures, the duration of such crises can increase by orders of magnitude when parameters are varied, as a result of the "paradox of thrift". Our model suggests policy recommendations that prevent the economy from getting trapped in extended stretches of low output, low investment and high unemployment.

econ.GN↗

arXiv2021

Exogenous and Endogenous Price Jumps Belong to Different Dynamical Classes

Synchronising a database of stock specific news with 5 years worth of order book data on 300 stocks, we show that abnormal price movements following news releases (exogenous) exhibit markedly different dynamical features from those arising spontaneously (endogenous). On average, large volatility fluctuations induced by exogenous events occur abruptly and are followed by a decaying power-law relaxation, while endogenous price jumps are characterized by progressively accelerating growth of volatility, also followed by a power-law relaxation, but slower than for exogenous jumps. Remarkably, our results are reminiscent of what is observed in different contexts, namely Amazon book sales and YouTube views. Finally, we show that fitting power-laws to {\it individual} volatility profiles allows one to classify large events into endogenous and exogenous dynamical classes, without relying on the news feed.

q-fin.TR↗

arXiv2021

From Ants to Fishing Vessels: A Simple Model for Herding and Exploitation of Finite Resources

We analyse the dynamics of fishing vessels with different home ports in an area where these vessels, in choosing where to fish, are influenced by their own experience in the past and by their current observation of the locations of other vessels in the fleet. Empirical data from the boats near Ancona and Pescara shows stylized statistical properties that are reminiscent of Kirman and Föllmer's ant recruitment model, although with two ant colonies represented by the two ports. From the point of view of a fisherman, the two fishing areas are not equally attractive, and he tends to prefer the one closer to where he is based. This piece of evidence led us to extend the original ants model to a situation with two asymmetric zones and finite resources. We show that, in the mean-field regime, our model exhibits the same properties as the empirical data. We obtain a phase diagram that separates high and low herding regimes, but also fish population extinction. Our analysis has interesting policy implications for the ecology of fishing areas. It also suggests that herding behaviour here, just as in financial markets, will lead to significant fluctuations in the amount of fish landed, as the boat concentration on one area at a given point in time will diminish the overall catch, such loss not being compensated by the reproduction of fish in the other area. In other terms, individually rational behaviour will not lead to collectively optimal results.

physics.soc-ph↗

arXiv2021

A Stationary Kyle Setup: Microfounding propagator models

We provide an economically sound micro-foundation to linear price impact models, by deriving them as the equilibrium of a suitable agent-based system. Our setup generalizes the well-known Kyle model, by dropping the assumption of a terminal time at which fundamental information is revealed so to describe a stationary market, while retaining agents' rationality and asymmetric information. We investigate the stationary equilibrium for arbitrary Gaussian noise trades and fundamental information, and show that the setup is compatible with universal price diffusion at small times, and non-universal mean-reversion at time scales at which fluctuations in fundamentals decay. Our model provides a testable relation between volatility of prices, magnitude of fluctuations in fundamentals and level of volume traded in the market.

q-fin.TR↗

arXiv2021

Crisis Propagation in a Heterogeneous Self-Reflexive DSGE Model

We study a self-reflexive DSGE model with heterogeneous households, aimed at characterising the impact of economic recessions on the different strata of the society. Our framework allows to analyse the combined effect of income inequalities and confidence feedback mediated by heterogeneous social networks. By varying the parameters of the model, we find different crisis typologies: loss of confidence may propagate mostly within high income households, or mostly within low income households, with a rather sharp crossover between the two. We find that crises are more severe for segregated networks (where confidence feedback is essentially mediated between agents of the same social class), for which cascading contagion effects are stronger. For the same reason, larger income inequalities tend to reduce, in our model, the probability of global crises. Finally, we are able to reproduce a perhaps counter-intuitive empirical finding: in countries with higher Gini coefficients, the consumption of the lowest income households tends to drop less than that of the highest incomes in crisis times.

cond-mat.stat-mech↗

arXiv2020

Why does individual learning endure when crowds are wiser?

The ability to learn from others (social learning) is often deemed a cause of human species success. But if social learning is indeed more efficient (whether less costly or more accurate) than individual learning, it raises the question of why would anyone engage in individual information seeking, which is a necessary condition for social learning's efficacy. We propose an evolutionary model solving this paradox, provided agents (i) aim not only at information quality but also vie for audience and prestige, and (ii) do not only value accuracy but also reward originality -- allowing them to alleviate herding effects. We find that under some conditions (large enough success rate of informed agents and intermediate taste for popularity), both social learning's higher accuracy and the taste for original opinions are evolutionary-stable, within a mutually beneficial division of labour-like equilibrium. When such conditions are not met, the system most often converges towards mutually detrimental equilibria.

physics.soc-ph↗

arXiv2020

Alignment and scattering of colliding active droplets

Active droplets emit a chemical solute at their surface that modifies their local interfacial tension. They exploit the nonlinear coupling of the convective transport of solute to the resulting Marangoni flows to self-propel. Such swimming droplets are by nature anti-chemotactic and are repelled by their own chemical wake or their neighbours. The rebound dynamics resulting from pairwise droplet interactions was recently analysed in detail for purely head-on collisions using a specific bispherical approach. Here, we extend this analysis and propose a reduced model of a generic collision to characterise the alignment and scattering properties of oblique droplet collisions and their potential impact on collective droplet dynamics. A systematic alignment of the droplets' trajectories is observed for symmetric collisions, when the droplets interact directly, and arises from the finite-time rearrangement of the droplets' chemical wake during the collision. For more generic collisions, complex and diverse dynamical regimes are observed, whether the droplets interact directly or through their chemical wake, resulting in a significant scattering.

physics.flu-dyn↗

arXiv2020

Unsteady Wave Drag on a Disturbance Moving Along an Arbitrary Trajectory

We derive analytical formulas for the wake and wave drag of a disturbance moving arbitrarily at the air-water interface. We show that, provided a constant velocity is reached in finite time, the unsteady surface displacement converges to its well-known steady counterpart as given by Havelock's famous formula. Finally we assess, in a specific situation, to which extent one can rightfully use Havelock's steady wave drag formula for non-uniform motion (quasi-static). Such an approach can be used to legitimize or discredit a number of studies which used steady wave drag formulas in unsteady situations.

physics.flu-dyn↗

arXiv2020

Non-parametric Estimation of Quadratic Hawkes Processes for Order Book Events

We propose an actionable calibration procedure for general Quadratic Hawkes models of order book events (market orders, limit orders, cancellations). One of the main features of such models is to encode not only the influence of past events on future events but also, crucially, the influence of past price changes on such events. We show that the empirically calibrated quadratic kernel is well described by a diagonal contribution (that captures past realised volatility), plus a rank-one "Zumbach" contribution (that captures the effect of past trends). We find that the Zumbach kernel is a power-law of time, as are all other feedback kernels. As in many previous studies, the rate of truly exogenous events is found to be a small fraction of the total event rate. These two features suggest that the system is close to a critical point -- in the sense that stronger feedback kernels would lead to instabilities.

q-fin.TR↗

arXiv2020

Schrödinger's ants: A continuous description of Kirman's recruitment model

We show how the approach to equilibrium in Kirman's ants model can be fully characterized in terms of the spectrum of a Schrödinger equation with a Pöschl-Teller ($\tan^2$) potential. Among other interesting properties, we have found that in the bimodal phase where ants visit mostly one food site at a time, the switch time between the two sources only depends on the ``spontaneous conversion" rate and not on the recruitment rate. More complicated correlation functions can be computed exactly, and involve higher and higher eigenvalues and eigenfunctions of the Schrödinger operator, which can be expressed in terms of hypergeometric functions.

physics.soc-ph↗

arXiv2020

By Force of Habit: Self-Trapping in a Dynamical Utility Landscape

Historically, rational choice theory has focused on the utility maximization principle to describe how individuals make choices. In reality, there is a computational cost related to exploring the universe of available choices and it is often not clear whether we are truly maximizing an underlying utility function. In particular, memory effects and habit formation may dominate over utility maximisation. We propose a stylized model with a history-dependent utility function where the utility associated to each choice is increased when that choice has been made in the past, with a certain decaying memory kernel. We show that self-reinforcing effects can cause the agent to get stuck with a choice by sheer force of habit. We discuss the special nature of the transition between free exploration of the space of choice and self-trapping. We find in particular that the trapping time distribution is precisely a Zipf law at the transition, and that the self-trapped phase exhibits super-aging behaviour.

cond-mat.stat-mech↗

arXiv2020

Endogenous Liquidity Crises

Empirical data reveals that the liquidity flow into the order book (depositions, cancellations andmarket orders) is influenced by past price changes. In particular, we show that liquidity tends todecrease with the amplitude of past volatility and price trends. Such a feedback mechanism inturn increases the volatility, possibly leading to a liquidity crisis. Accounting for such effects withina stylized order book model, we demonstrate numerically that there exists a second order phasetransition between a stable regime for weak feedback to an unstable regime for strong feedback,in which liquidity crises arise with probability one. We characterize the critical exponents, whichappear to belong to a new universality class. We then propose a simpler model for spread dynamicsthat maps onto a linear Hawkes process which also exhibits liquidity crises. If relevant for thereal markets, such a phase transition scenario requires the system to sit below, but very close tothe instability threshold (self-organised criticality), or else that the feedback intensity is itself timedependent and occasionally visits the unstable region. An alternative scenario is provided by a classof non-linear Hawkes process that show occasional "activated" liquidity crises, without having to bepoised at the edge of instability.

q-fin.TR↗

arXiv2020

Bouncing, chasing or pausing: asymmetric collisions of active droplets

Chemically-active droplets exhibit complex avoiding trajectories. While heterogeneity is inevitable in active matter experiments, it is mostly overlooked in their modelling. Exploiting its geometric simplicity, we fully-resolve the head-on collision of two swimming droplets of different radii and demonstrate that even a small contrast in size critically conditions their collision and subsequent dynamics. We identify three fundamentally-different regimes. The resulting high sensitivity of pairwise collisions is expected to profoundly affect their collective dynamics.

physics.flu-dyn↗

arXiv2020

Zooming In on Equity Factor Crowding

Crowding is most likely an important factor in the deterioration of strategy performance, the increase of trading costs and the development of systemic risk. We study the imprints of \emph{crowding} on both anonymous market data and a large database of metaorders from institutional investors in the U.S. equity market. We propose direct metrics of crowding that capture the presence of investors contemporaneously trading the same stock in the same direction by looking at fluctuations of the imbalances of trades executed on the market. We identify significant signs of crowding in well known equity signals, such as Fama-French factors and especially Momentum. We show that the rebalancing of a Momentum portfolio can explain between 1-2\% of order flow, and that this percentage has been significantly increasing in recent years.

q-fin.TR↗

arXiv2020

Conditional Correlations and Principal Regression Analysis for Futures

We explore the effect of past market movements on the instantaneous correlations between assets within the futures market. Quantifying this effect is of interest to estimate and manage the risk associated to portfolios of futures in a non-stationary context. We apply and extend a previously reported method called the Principal Regression Analysis (PRA) to a universe of $84$ futures contracts between $2009$ and $2019$. We show that the past up (resp. down) 10 day trends of a novel predictor -- the eigen-factor -- tend to reduce (resp. increase) instantaneous correlations. We then carry out a multifactor PRA on sectorial predictors corresponding to the four futures sectors (indexes, commodities, bonds and currencies), and show that the effect of past market movements on the future variations of the instantaneous correlations can be decomposed into two significant components. The first component is due to the market movements within the index sector, while the second component is due to the market movements within the bonds sector.

q-fin.ST↗

arXiv2019

Collisions and rebounds of chemically-active droplets

Active droplets swim as a result of the nonlinear advective coupling of the distribution of chemical species they consume or release with the Marangoni flows created by their non-uniform surface distribution. Most existing models focus on the self-propulsion of a single droplet in an unbounded fluid, which arises when diffusion is slow enough (i.e. beyond a critical Péclet number, $\mbox{Pe}_c$). Despite its experimental relevance, the coupled dynamics of multiple droplets and/or collision with a wall remains mostly unexplored. Using a novel approach based on a moving fitted bispherical grid, the fully-coupled nonlinear dynamics of the chemical solute and flow fields are solved here to characterise in detail the axisymmetric collision of an active droplet with a rigid wall (or with a second droplet). The dynamics is strikingly different depending on the convective-to-diffusive transport ratio, $\mbox{Pe}$: near the self-propulsion threshold (moderate $\mbox{Pe}$), the rebound dynamics are set by chemical interactions and are well captured by asymptotic analysis; in contrast, for larger $\mbox{Pe}$, a complex and nonlinear combination of hydrodynamic and chemical effects set the detailed dynamics, including a closer approach to the wall and a velocity plateau shortly after the rebound of the droplet. The rebound characteristics, i.e. minimum distance and duration, are finally fully characterised in terms of $\mbox{Pe}$.

physics.flu-dyn↗

arXiv2019

Beauty and structural complexity

We revisit the long-standing question of the relation between image appreciation and its statistical properties. We generate two different sets of random images well distributed along three measures of entropic complexity. We run a large-scale survey in which people are asked to sort the images by preference, which reveals maximum appreciation at intermediate entropic complexity. We show that the algorithmic complexity of the coarse-grained images, expected to capture structural complexity while abstracting from high frequency noise, is a good predictor of preferences. Our analysis suggests that there might exist some universal quantitative criteria for aesthetic judgement.

cond-mat.stat-mech↗

arXiv2019

Confidence Collapse in a Multi-Household, Self-Reflexive DSGE Model

We investigate a multi-household DSGE model in which past aggregate consumption impacts the confidence, and therefore consumption propensity, of individual households. We find that such a minimal setup is extremely rich, and leads to a variety of realistic output dynamics: high output with no crises; high output with increased volatility and deep, short lived recessions; alternation of high and low output states where relatively mild drop in economic conditions can lead to a temporary confidence collapse and steep decline in economic activity. The crisis probability depends exponentially on the parameters of the model, which means that markets cannot efficiently price the associated risk premium. We conclude by stressing that within our framework, {\it narratives} become an important monetary policy tool, that can help steering the economy back on track.

q-fin.GN↗