arXiv subjects

Stefano Ciliberti

Publications and source records attributed to Stefano Ciliberti.

17 recordsLinked to original sources

arXiv2021

A new spin on optimal portfolios and ecological equilibria

We consider the classical problem of optimal portfolio construction with the constraint that no short position is allowed, or equivalently the valid equilibria of multispecies Lotka-Volterra equations with self-regulation in the special case where the interaction matrix is of unit rank, corresponding to species competing for a common resource. We compute the average number of solutions and show that its logarithm grows as $N^α$, where $N$ is the number of assets or species and $α\leq 2/3$ depends on the interaction matrix distribution. We conjecture that the most likely number of solutions is much smaller and related to the typical sparsity $m(N)$ of the solutions, which we compute explicitly. We also find that the solution landscape is similar to that of spin-glasses, i.e. very different configurations are quasi-degenerate. Correspondingly, "disorder chaos" is also present in our problem. We discuss the consequence of such a property for portfolio construction and ecologies, and question the meaning of rational decisions when there is a very large number "satisficing" solutions.

cond-mat.stat-mech↗

arXiv2021

Equity Factors: To Short Or Not To Short, That Is The Question

What is the best market-neutral implementation of classical Equity Factors? Should one use the specific predictability of the short-leg to build a zero beta Long-Short portfolio, in spite of the specific costs associated to shorting, or is it preferable to ban the shorts and hedge the long-leg with -- say -- an index future? We revisit this question by focusing on the relative predictability of the two legs, the issue of diversification, and various sources of costs. Our conclusion is that, using the same Factors, a Long-Short implementation leads to superior risk-adjusted returns than its Hedged Long-Only counterpart, at least when Assets Under Management are not too large.

q-fin.PM↗

arXiv2019

The Case for Long-Only Agnostic Allocation Portfolios

We advocate the use of Agnostic Allocation for the construction of long-only portfolios of stocks. We show that Agnostic Allocation Portfolios (AAPs) are a special member of a family of risk-based portfolios that are able to mitigate certain extreme features (excess concentration, high turnover, strong exposure to low-risk factors) of classical portfolio construction methods, while achieving similar performance. AAPs thus represent a very attractive alternative risk-based portfolio construction framework that can be implemented in different situations, with or without an active trading signal.

q-fin.PM↗

arXiv2018

Portfolio Construction Matters

The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features by properly taking care of this key step. More precisely, an optimized portfolio construction algorithm allows one to significantly improve the Sharpe Ratio, reduce sector exposures and volatility fluctuations, and mitigate the strategy's skewness and tail correlation with the market. These results are supported by long-term, world-wide simulations and will be shown to be universal. Our findings are quite general and hold true for a number of other "equity factors". Finally, we discuss the details of a more realistic set-up where we also deal with transaction costs.

q-fin.PM↗

arXiv2018

Co-existence of Trend and Value in Financial Markets: Estimating an Extended Chiarella Model

Trend and Value are pervasive anomalies, common to all financial markets. We address the problem of their co-existence and interaction within the framework of Heterogeneous Agent Based Models (HABM). More specifically, we extend the Chiarella (1992) model by adding noise traders and a non-linear demand of fundamentalists. We use Bayesian filtering techniques to calibrate the model on time series of prices across a variety of asset classes since 1800. The fundamental value is an output of the calibration, and does not require the use of an external pricing model. Our extended model reproduces many empirical observations, including the non-monotonic relation between past trends and future returns. The destabilizing activity of trend-followers leads to a qualitative change of mispricing distribution, from unimodal to bimodal, meaning that some markets tend to be over- (or under-) valued for long periods of time.

q-fin.ST↗

arXiv2017

The "Size Premium" in Equity Markets: Where is the Risk?

We find that when measured in terms of dollar-turnover, and once $β$-neutralised and Low-Vol neutralised, the Size Effect is alive and well. With a long term t-stat of $5.1$, the "Cold-Minus-Hot" (CMH) anomaly is certainly not less significant than other well-known factors such as Value or Quality. As compared to market-cap based SMB, CMH portfolios are much less anti-correlated to the Low-Vol anomaly. In contrast with standard risk premia, size-based portfolios are found to be virtually unskewed. In fact, the extreme risk of these portfolios is dominated by the large cap leg; small caps actually have a positive (rather than negative) skewness. The only argument that favours a risk premium interpretation at the individual stock level is that the extreme drawdowns are more frequent for small cap/turnover stocks, even after accounting for volatility. This idiosyncratic risk is however clearly diversifiable.

q-fin.PM↗

arXiv2016

The Excess Returns of "Quality" Stocks: A Behavioral Anomaly

This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is somehow riskier, so that the higher returns of a quality portfolio are a compensation for risk exposure. This view is consistent with the Efficient Market Hypothesis. The other view is the "behavioral view", which states that some investors persistently underestimate the true value of high quality firms. We find no evidence in favor of the "risk view": The returns from investing in quality firms are abnormally high on a risk-adjusted basis, and are not prone to crashes. We provide novel evidence in favor of the "behavioral view": In their forecasts of future prices, and while being overall overoptimistic, analysts systematically underestimate the future return of high quality firms, compared to low quality firms.

q-fin.PM↗

arXiv2011

Erratum for: Smile dynamics -- a theory of the implied leverage effect

We correct a mistake in the published version of our paper. Our new conclusion is that the "implied leverage effect" for single stocks is underestimated by option markets for short maturities and overestimated for long maturities, while it is always overestimated for OEX options, except for the shortest maturities where the revised theory and data match perfectly.

q-fin.PR↗

arXiv2008

Smile dynamics -- a theory of the implied leverage effect

We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous dependence of the skew as a function of maturity of the option. The market cap dependence of the leverage effect is analyzed using a one-factor model. We show how this leverage correlation gives rise to a non-trivial smile dynamics, which turns out to be intermediate between the "sticky strike" and the "sticky delta" rules. Finally, we compare our result with stock option data, and find that option markets overestimate the leverage effect by a large factor, in particular for long dated options.

q-fin.PR↗

arXiv2006

On the origin of the Boson peak in globular proteins

We study the Boson Peak phenomenology experimentally observed in globular proteins by means of elastic network models. These models are suitable for an analytic treatment in the framework of Euclidean Random Matrix theory, whose predictions can be numerically tested on real proteins structures. We find that the emergence of the Boson Peak is strictly related to an intrinsic mechanical instability of the protein, in close similarity to what is thought to happen in glasses. The biological implications of this conclusion are also discussed by focusing on a representative case study.

cond-mat.soft↗

arXiv2006

Risk Minimization through Portfolio Replication

We use a replica approach to deal with portfolio optimization problems. A given risk measure is minimized using empirical estimates of asset values correlations. We study the phase transition which happens when the time series is too short with respect to the size of the portfolio. We also study the noise sensitivity of portfolio allocation when this transition is approached. We consider explicitely the cases where the absolute deviation and the conditional value-at-risk are chosen as a risk measure. We show how the replica method can study a wide range of risk measures, and deal with various types of time series correlations, including realistic ones with volatility clustering.

physics.soc-ph↗

arXiv2006

On the Feasibility of Portfolio Optimization under Expected Shortfall

We address the problem of portfolio optimization under the simplest coherent risk measure, i.e. the expected shortfall. As it is well known, one can map this problem into a linear programming setting. For some values of the external parameters, when the available time series is too short, the portfolio optimization is ill posed because it leads to unbounded positions, infinitely short on some assets and infinitely long on some others. As first observed by Kondor and coworkers, this phenomenon is actually a phase transition. We investigate the nature of this transition by means of a replica approach.

physics.soc-ph↗

arXiv2006

The Glass-like Structure of Globular Proteins and the Boson Peak

Vibrational spectra of proteins and topologically disordered solids display a common anomaly at low frequencies, known as Boson peak. We show that such feature in globular proteins can be deciphered in terms of an energy landscape picture, as it is for glassy systems. Exploiting the tools of Euclidean random matrix theory, we clarify the physical origin of such anomaly in terms of a mechanical instability of the system. As a natural explanation, we argue that such instability is relevant for proteins in order for their molecular functions to be optimally rooted in their structures.

cond-mat.soft↗

arXiv2005

The theoretical capacity of the Parity Source Coder

The Parity Source Coder is a protocol for data compression which is based on a set of parity checks organized in a sparse random network. We consider here the case of memoryless unbiased binary sources. We show that the theoretical capacity saturate the Shannon limit at large K. We also find that the first corrections to the leading behavior are exponentially small, so that the behavior at finite K is very close to the optimal one.

cond-mat.dis-nn↗

arXiv2004

Localization threshold of Instantaneous Normal Modes from level-spacing statistics

We study the statistics of level-spacing of Instantaneous Normal Modes in a supercooled liquid. A detailed analysis allows to determine the mobility edge separating extended and localized modes in the negative tail of the density of states. We find that at temperature below the mode coupling temperature only a very small fraction of negative eigenmodes are localized.

cond-mat.stat-mech↗

arXiv2003

A Quantitative Clustering Approach to Ultrametricity in Spin Glasses

We discuss the problem of ultrametricity in mean field spin glasses by means of a hierarchical clustering algorithm. We complement the clustering approach with quantitative testing: we discuss both in some detail. We show that the elimination of the (in this context accidental) spin flip symmetry plays a crucial role in the analysis, since the symmetry hides the real nature of the data. We are able to use in the analysis disorder averaged quantities. We are able to exhibit a number of features of the low $T$ phase of the mean field theory, and to claim that the full hierarchical structure can be observed without ambiguities only on very large lattice volumes, not currently accessible by numerical simulations.

cond-mat.stat-mech↗

arXiv2000

Discretized Diffusion Processes

We study the properties of the ``Rigid Laplacian'' operator, that is we consider solutions of the Laplacian equation in the presence of fixed truncation errors. The dynamics of convergence to the correct analytical solution displays the presence of a metastable set of numerical solutions, whose presence can be related to granularity. We provide some scaling analysis in order to determine the value of the exponents characterizing the process. We believe that this prototype model is also suitable to provide an explanation of the widespread presence of power-law in social and economic system where information and decision diffuse, with errors and delay from agent to agent.

cond-mat.stat-mech↗