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arXiv2008

The instability of downside risk measures

We study the feasibility and noise sensitivity of portfolio optimization under some downside risk measures (Value-at-Risk, Expected Shortfall, and semivariance) when they are estimated by fitting a parametric distribution on a finite sample of asset returns. We find that the existence of the optimum is a probabilistic issue, depending on the particular random sample, in all three cases. At a critical combination of the parameters of these problems we find an algorithmic phase transition, separating the phase where the optimization is feasible from the one where it is not. This transition is similar to the one discovered earlier for Expected Shortfall based on historical time series. We employ the replica method to compute the phase diagram, as well as to obtain the critical exponent of the estimation error that diverges at the critical point. The analytical results are corroborated by Monte Carlo simulations.

q-fin.RM↗
arXiv2008

Real GDP per capita in developed countries

Growth rate of real GDP per capita is represented as a sum of two components -- a monotonically decreasing economic trend and fluctuations related to a specific age population change. The economic trend is modeled by an inverse function of real GDP per capita with a numerator potentially constant for the largest developed economies. Statistical analysis of 19 selected OECD countries for the period between 1950 and 2004 shows a very weak linear trend in the annual GDP per capita increment for the largest economies: the USA, Japan, France, Italy, and Spain. The UK, Australia, and Canada show a larger positive linear trend. The fluctuations around the trend values are characterized by a quasi-normal distribution with potentially Levy distribution for far tails. Developing countries demonstrate the increment values far below the mean increment for the most developed economies. This indicates an underperformance in spite of large relative growth rates.

q-fin.GN↗
arXiv2008

Inflation as a function of labor force change rate: cointegration test for the USA

A linear and lagged relationship between inflation and labor force change rate, p(t)= A1dLF(t-t1)/LF(t-t1)+A2 was found for developed economies. For the USA, A1=4.0, A2=-0.03075, and t1=2 years. It provides a RMS forecasting error (RMFSE) of 0.8% at a two-year horizon for the period between 1965 and 2002 (the best among other inflation forecasting models). This relationship is tested for cointegration. Both variables are integrated of order one according to the presence of a unit root in the series and its absence in their first differences. Two methods of cointegration testing are applied: the Engle-Granger one based on the unit root test of the residuals including a variety of specification tests and the Johansen cointegration rank test based on the VAR representation. Both approaches demonstrate that the variables are cointegrated and the long-run equilibrium relation revealed in previous study holds. According to the Granger causality test, the labor force change is proved to be a weakly exogenous variable - a natural result considering the time lead and the existence of a cointegrating relation. VAR and VECM representations do not provide any significant improvement in RMSFE. There are numerous applications of the equation: from purely theoretical - a robust fundamental relation between macroeconomic and population variables, to a practical one - an accurate out-of-sample inflation forecasting at a two-year horizon and a long-term prediction based on labor force projections. The predictive power of the relationship is inversely proportional to the uncertainty of labor force estimates. Therefore, future inflation research programs should start from a significant improvement in the accuracy of labor force estimations.

q-fin.GN↗
arXiv2008

Modelling the transition from a socialist to capitalist economic system

The transition of several East and Central European countries and the countries of the Former Soviet Union from the socialist economic system to the capitalist one is studied. A recently developed microeconomic model for the personal income distribution and its evolution and a simple functional relationship between the rate of the per capita GDP growth and the attained level of the per capita GDP are used to describe the transition process. The developed transition model contains only three defining parameters and describes the process of real GDP per capita evolution during the last 15 years. It is found that the transition process finished in the Central European countries several years ago and their economic evolution is defined by pure capitalist rules. In the long run, this means that the future of these countries has to follow the same path, i.e. dependence on the per capita GDP growth rate of the per capita GDP itself, as the developed countries have had in the past. If the best GDP evolution scenario occurs for the studied countries, they will be able to maintain the absolute lag in per capita GDP relative to most developed countries including the USA. But they will never catch the advanced countries if they follow the same rules of development. In Russia and some countries of the Former Soviet Union the transition process is still far from complete.

q-fin.GN↗
arXiv2008

The driving force of labor productivity

Labor productivity in developed countries is analyzed and modeled. Modeling is based on our previous finding that the rate of labor force participation is a unique function of GDP per capita. Therefore, labor productivity is fully determined by the rate of economic growth, and thus, is a secondary economic variable. Initially, we assess a model for the U.S. and then test it using data for Japan, France, the UK, Italy, and Canada. Results obtained for these countries validate those for the U.S. The evolution of labor force productivity is predictable at least at an 11-year horizon

q-fin.GN↗
arXiv2008

GDP growth rate and population

Real GDP growth rate in developed countries is found to be a sum of two terms. The first term is the reciprocal value of the duration of the period of mean income growth with work experience, Tcr. The current value of Tcr in the USA is 40 years. The second term is inherently related to population and defined by the relative change in the number of people with a specific age (9 years in the USA), (1/2)*dN9(t) /N9(t), where N9(t) is the number of 9-year-olds at time t. The Tcr grows as the square root of real GDP per capita. Hence, evolution of real GDP is defined by only one parameter - the number of people of the specific age. Predictions for the USA, the UK, and France are presented and discussed. A similar relationship is derived for real GDP per capita. Annual increment of GDP per capita is also a combination of economic trend term and the same specific age population term. The economic trend term during last 55 years is equal to $400 (2002 US dollars) divided by the attained level of real GDP per capita. Thus, the economic trend term has an asymptotic value of zero. Inversion of the measured GDP values is used to recover the corresponding change of the specific age population between 1955 and 2003. The population recovery method based on GDP potentially is of a higher accuracy than routine censuses.

q-fin.GN↗
arXiv2011

An Apology for Money

This review is about the convenience, the benefits, as well as the destructive capacities of money. It deals with various aspects of money creation, with its value, and its appropriation. All sorts of money tend to get corrupted by eventually creating too much of them. In the long run, this renders money worthless and deprives people holding it. This misuse of money creation is inevitable and should come as no surprise. Abusive money creation comes in various forms. In the present fiat money system "suspended in free thought" and sustained merely by our belief in and our conditioning to it, money is conveniently created out of "thin air" by excessive government spending and speculative credit creation. Alas, any too tight money supply could ruin an economy by inviting all sorts of unfriendly takeovers, including wars or competition. Therefore the ambivalence of money as benefactor and destroyer should be accepted as destiny.

q-fin.GN↗
arXiv2009

How Homophily Affects Diffusion and Learning in Networks

We examine how three different communication processes operating through social networks are affected by homophily -- the tendency of individuals to associate with others similar to themselves. Homophily has no effect if messages are broadcast or sent via shortest paths; only connection density matters. In contrast, homophily substantially slows learning based on repeated averaging of neighbors' information and Markovian diffusion processes such as the Google random surfer model. Indeed, the latter processes are strongly affected by homophily but completely independent of connection density, provided this density exceeds a low threshold. We obtain these results by establishing new results on the spectra of large random graphs and relating the spectra to homophily. We conclude by checking the theoretical predictions using observed high school friendship networks from the Adolescent Health dataset.

physics.soc-ph↗
arXiv2009

Recent developments in superstatistics

We provide an overview on superstatistical techniques applied to complex systems with time scale separation. Three examples of recent applications are dealt with in somewhat more detail: the statistics of small-scale velocity differences in Lagrangian turbulence experiments, train delay statistics on the British rail network, and survival statistics of cancer patients once diagnosed with cancer. These examples correspond to three different universality classes: Lognormal superstatistics, chi-square superstatistics and inverse chi-square superstatistics.

cond-mat.stat-mech↗
arXiv2009

Directionality of contact networks suppresses selection pressure in evolutionary dynamics

Individuals of different types, may it be genetic, cultural, or else, with different levels of fitness often compete for reproduction and survival. A fitter type generally has higher chances of disseminating their copies to other individuals. The fixation probability of a single mutant type introduced in a population of wild-type individuals quantifies how likely the mutant type spreads. How much the excess fitness of the mutant type increases its fixation probability, namely, the selection pressure, is important in assessing the impact of the introduced mutant. Previous studies mostly based on undirected and unweighted contact networks of individuals showed that the selection pressure depends on the structure of networks and the rule of reproduction. Real networks underlying ecological and social interactions are usually directed or weighted. Here we examine how the selection pressure is modulated by directionality of interactions under several update rules. Our conclusions are twofold. First, directionality discounts the selection pressure for different networks and update rules. Second, given a network, the update rules in which death events precede reproduction events significantly decrease the selection pressure than the other rules.

physics.soc-ph↗
arXiv2010

A Diffusive Strategic Dynamics for Social Systems

We propose a model for the dynamics of a social system, which includes diffusive effects and a biased rule for spin-flips, reproducing the effect of strategic choices. This model is able to mimic some phenomena taking place during marketing or political campaigns. Using a cost function based on the Ising model defined on the typical quenched interaction environments for social systems (Erdos-Renyi graph, small-world and scale-free networks), we find, by numerical simulations, that a stable stationary state is reached, and we compare the final state to the one obtained with standard dynamics, by means of total magnetization and magnetic susceptibility. Our results show that the diffusive strategic dynamics features a critical interaction parameter strictly lower than the standard one. We discuss the relevance of our findings in social systems.

physics.soc-ph↗
arXiv2009

Stability of graph communities across time scales

The complexity of biological, social and engineering networks makes it desirable to find natural partitions into communities that can act as simplified descriptions and provide insight into the structure and function of the overall system. Although community detection methods abound, there is a lack of consensus on how to quantify and rank the quality of partitions. We show here that the quality of a partition can be measured in terms of its stability, defined in terms of the clustered autocovariance of a Markov process taking place on the graph. Because the stability has an intrinsic dependence on time scales of the graph, it allows us to compare and rank partitions at each time and also to establish the time spans over which partitions are optimal. Hence the Markov time acts effectively as an intrinsic resolution parameter that establishes a hierarchy of increasingly coarser clusterings. Within our framework we can then provide a unifying view of several standard partitioning measures: modularity and normalized cut size can be interpreted as one-step time measures, whereas Fiedler's spectral clustering emerges at long times. We apply our method to characterize the relevance and persistence of partitions over time for constructive and real networks, including hierarchical graphs and social networks. We also obtain reduced descriptions for atomic level protein structures over different time scales.

physics.soc-ph↗
arXiv2008

Multi-level algorithms for modularity clustering

Modularity is one of the most widely used quality measures for graph clusterings. Maximizing modularity is NP-hard, and the runtime of exact algorithms is prohibitive for large graphs. A simple and effective class of heuristics coarsens the graph by iteratively merging clusters (starting from singletons), and optionally refines the resulting clustering by iteratively moving individual vertices between clusters. Several heuristics of this type have been proposed in the literature, but little is known about their relative performance. This paper experimentally compares existing and new coarsening- and refinement-based heuristics with respect to their effectiveness (achieved modularity) and efficiency (runtime). Concerning coarsening, it turns out that the most widely used criterion for merging clusters (modularity increase) is outperformed by other simple criteria, and that a recent algorithm by Schuetz and Caflisch is no improvement over simple greedy coarsening for these criteria. Concerning refinement, a new multi-level algorithm is shown to produce significantly better clusterings than conventional single-level algorithms. A comparison with published benchmark results and algorithm implementations shows that combinations of coarsening and multi-level refinement are competitive with the best algorithms in the literature.

cs.DS↗
arXiv2008

Content-based and Algorithmic Classifications of Journals: Perspectives on the Dynamics of Scientific Communication and Indexer Effects

The aggregated journal-journal citation matrix -based on the Journal Citation Reports (JCR) of the Science Citation Index- can be decomposed by indexers and/or algorithmically. In this study, we test the results of two recently available algorithms for the decomposition of large matrices against two content-based classifications of journals: the ISI Subject Categories and the field/subfield classification of Glaenzel & Schubert (2003). The content-based schemes allow for the attribution of more than a single category to a journal, whereas the algorithms maximize the ratio of within-category citations over between-category citations in the aggregated category-category citation matrix. By adding categories, indexers generate between-category citations, which may enrich the database, for example, in the case of inter-disciplinary developments. The consequent indexer effects are significant in sparse areas of the matrix more than in denser ones. Algorithmic decompositions, on the other hand, are more heavily skewed towards a relatively small number of categories, while this is deliberately counter-acted upon in the case of content-based classifications. Because of the indexer effects, science policy studies and the sociology of science should be careful when using content-based classifications, which are made for bibliographic disclosure, and not for the purpose of analyzing latent structures in scientific communications. Despite the large differences among them, the four classification schemes enable us to generate surprisingly similar maps of science at the global level. Erroneous classifications are cancelled as noise at the aggregate level, but may disturb the evaluation locally.

physics.data-an↗
arXiv2010

An Analysis of the Japanese Credit Network

An analysis of the Japanese credit market in 2004 between banks and quoted firms is done in this paper using the tools of the networks theory. It can be pointed out that: (i) a backbone of the credit channel emerges, where some links play a crucial role; (ii) big banks privilege long-term contracts; the "minimal spanning trees" (iii) disclose a highly hierarchical backbone, where the central positions are occupied by the largest banks, and emphasize (iv) a strong geographical characterization, while (v) the clusters of firms do not have specific common properties. Moreover, (vi) while larger firms have multiple lending in large, (vii) the demand for credit (long vs. short term debt and multi-credit lines) of firms with similar sizes is very heterogeneous.

q-fin.ST↗
arXiv2009

Coevolution of game and network structure: The temptation increases the cooperator density

Most papers about the evolutionary game on graph assume the statistic network structure. However, social interaction could change the relationship of people. And the changing social structure will affect the people's strategy too. We build a coevolutionary model of prisoner's dilemma game and network structure to study the dynamic interaction in the real world. Based on the asynchronous update rule and Monte Carlo simulation, we find that, when players prefer to rewire their links to the richer, the cooperation density will increase. The reason of it has been analyzed.

physics.soc-ph↗