Papers by Rosario N Mantegna
Quantitative Finance, 2021
It all began in Lausanne, when John Sutton invited us for a session on the growth of firms at the... more It all began in Lausanne, when John Sutton invited us for a session on the growth of firms at the European Conference of the Econometric Society. That meeting was the beginning of a deep friendship and intense collaboration. At that time, John Sutton's work on innovation, firm growth, and industry structure, together with that of Herbert A. Simon, the founding father of the stochastic tradition in the analysis of the growth of business firms, was already a fundamental source of inspiration. For more than 15 years, the four of us traveled between Boston, Lucca, and Milan, combining hard work with vibrant discussions on the most disparate themes. Gene's enthusiasm and generosity have sustained us to "get the work done," to overcome every difficulty, and to focus our gaze on "The Book," as if gazing on a polar star. We remember our ideas drafted on the blackboards at the Center of Polymer Studies at Boston University, the long conversations and collaborations with Kazuko Yamasaki, Kaushik Matia, Dongfeng Fu, Linda Ponta, and with the great students and scholars that animated Gene's Laboratory. These are all memories of our ιλία, to look back on with a smile and a content heart. Soon, Sergey fell in love with the ancient town of Lucca, where he spent many months working on the book, secluded in the ancient monasteries of San Francesco and San Micheletto, and whose walls he encircled by jogging, thinking, and discussing with Fabio on the puzzles of preferential growth. Sole and Stefano deserve a special mention for their hospitality at Il Mecenate, first under The Fig Tree in Gattaiola and then in Piazza San Francesco, where heated discussions took place. Gene and Sergey want to thank their colleague and coauthor Michael A. Salinger without whose guidance it would have been impossible for them to enter the field of economics. Gene and Sergey are also grateful to Shlomo Havlin, their most frequent coauthor, whose interest in applying concepts of statistical physics to complex systems has stimulated their research for four decades. Last, but not least, we are in debt to those who participated in the creation of the new field of Econophysics
Econophysical Modelling of Financial Markets. During the past decade, a group of physicists becam... more Econophysical Modelling of Financial Markets. During the past decade, a group of physicists became interested in the analysis and modelling of financial markets and social systems, using methods and tools common to statistical and theoretical physics. These researchers christened their new scientific discipline" Econophysics"(you can find more information about Econophysics on the web pages< http://www. econophysics. org> and< http://www. unifr. ch/econophysics/>). In this article the authors look at the Econophysical research ...
Proceedings of the National Academy of Sciences
Significance During the last two decades, technological innovation and regulatory requirements ha... more Significance During the last two decades, technological innovation and regulatory requirements have deeply changed the way financial markets work. Today, financial markets are characterized by the presence of high-frequency traders (able to perform financial transactions at a submillisecond time scale) and market fragmentation. Using methods of complex networks, we show that some market participants (specifically so-called market members) preferentially interact with or avoid other market members persistently over a time scale extending up to several months. By investigating two financial venues at three different periods of time from two different decades, we show that the persistent networked nature of today’s markets is most pronounced since the diffusion of high-frequency trading and market fragmentation.
Handbook of Computational Economics, 2018
Abstract The recent global financial crisis has triggered a huge interest in the use of network c... more Abstract The recent global financial crisis has triggered a huge interest in the use of network concepts and network tools to better understand how instabilities can propagate through the financial system. The literature is today quite vast, covering both theoretical and empirical aspects. This review concentrates on empirical work, and associated methodologies, concerned with the evaluation of the fragility and resilience of financial and credit markets. The first part of the review examines the literature on systemic risk that arise from banks mutual exposures. These exposures stem primarily from interbank lending and derivative positions, but also, indirectly, from common holdings of other asset classes, that can lead to common shocks in instances of fire sales, and from widespread non-performing loans to the real sector during period of economic downturns. We survey (a) studies that characterize the structure of national interbank networks, in some cases using a multiplex representations, (b) studies that introduce novel methods to quantify systemic risk and identify systemically important institutions, such as via stress test scenarios, (c) studies that assess which regulatory measures can help mitigate the propagation of contagion and distress in the financial system, and (d) studies that explore which location advantages may arise from holding privileged positions in the interbank network, such as via preferential lending relationships, or because of occupying a more central node, and if such advantages can provide an early indication of the build up of systemic risk. The second part of the review is dedicated to the analysis of indirect networks, specifically (e) proximity based network, i.e. networks obtained starting from a proximity measure sometime filtered with a network filtering methodology, (f) association network, i.e. networks where a link between two financial actors is set if a statistical test again a null hypothesis is rejected, and (g) statistically validated networks, i.e. event or relationship networks where a subset of links is selected according to a statistical validation associated with the rejection of a random null hypothesis. The need for a joint consideration of direct and indirect channels of contagion is briefly discussed.
Palgrave Communications, 2018
The cornerstone of modern finance is the efficient market hypothesis. Under this hypothesis all i... more The cornerstone of modern finance is the efficient market hypothesis. Under this hypothesis all information available about a financial asset is immediately incorporated into its price dynamics by fully rational investors. In contrast to this hypothesis many studies have pointed out behavioral biases in investors. Recently it has become possible to access databases that track the trading decisions of investors. Studies of such databases have shown that investors acting in a financial market are highly heterogeneous among them, and that heterogeneity is a common characteristic of many financial markets. The article describes an empirical study of the daily trading decisions of all Finnish investors investing Nokia stock over a time period of 15 years. The investigation is performed by adapting and using methods and tools in network science. By investigating daily trading decisions, and by constructing the time-evolution of statistically validated networks of investors, clusters of investors-and their time evolution-which are characterized by similar trading profiles are detected. These clusters are performing distinct trading decisions on time scales ranging from several months to twelve years. These empirical observations show the presence of an ecology of groups of investors characterized by different attributes and by various investment styles over many years. Some of the detected clusters present a persistent over-expression of specific investor categories. The study shows that the logarithm of the ratio of pairs of statistically validated trading decisions is different for different values of the market volatility. These findings suggest that an ecology of investors is present in financial markets and that groups of traders are always competing, adopting, using and eventually discarding new investment strategies. This adaptation process is observed over a multiplicity of time scales, and is compatible with several conclusions of behavioral finance and with the assumptions of the so-called adaptive market hypothesis.
SSRN Electronic Journal, 2015
The Office of Financial Research (OFR) Working Paper Series allows members of the OFR staff and t... more The Office of Financial Research (OFR) Working Paper Series allows members of the OFR staff and their coauthors to disseminate preliminary research findings in a format intended to generate discussion and critical comments. Papers in the OFR Working Paper Series are works in progress and subject to revision. Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury. Comments and suggestions for improvements are welcome and should be directed to the authors. OFR working papers may be quoted without additional permission.
Air Transport is a complex system. Although the idea of complexity has been introduced only recen... more Air Transport is a complex system. Although the idea of complexity has been introduced only recently in the scientific world, all professionals and researchers involved in the study and management of the Air Transport System would agree on this point. It is composed of a plethora of different agents, constantly interacting, sharing partial and noisy information, and pursuing different objectives. The result of these interactions – emergent behaviour – is usu-ally unwanted disturbance that affects the quality of service perceived by the customers, such as delays and cancellations, or adverse safety events. In this contribution, we will present in detail why Air Transport is considered a complex sys-tem, and how Complexity Science can contribute to creating improved, safe and efficient Air Traffic Management. All of this has to be seen in the context of ComplexWorld, a collabora-tion network created to foster interactions between Complex Systems and Air Traffic Man-agement researchers.
Physica A: Statistical Mechanics and its Applications, 2003
On rare occasions, the coining of a new term brings new ideas to a ÿeld by virtue of a shift in v... more On rare occasions, the coining of a new term brings new ideas to a ÿeld by virtue of a shift in viewpoint. A recent example is "complexity", which collected, from a core of deep results in mathematics and hydrodynamics, a clan of ÿelds whose kinship had been revealed by the new term itself. More often such appellations merely follow fashionable trends. So it took boldness to promote the vision for a conference at the border of two ÿelds of research, economy and physics, in a country not really considered to be a leader in both. Promoted as early as 1999 at the Dublin EPS meeting on "Applications of Physics to Financial Analysis (APFA)"
Physical Review E, 2005
We study theoretical and empirical aspects of the mean exit time of financial time series. The th... more We study theoretical and empirical aspects of the mean exit time of financial time series. The theoretical modeling is done within the framework of continuous time random walk. We empirically verify that the mean exit time follows a quadratic scaling law and it has associated a pre-factor which is specific to the analyzed stock. We perform a series of statistical tests to determine which kind of correlation are responsible for this specificity. The main contribution is associated with the autocorrelation property of stock returns. We introduce and solve analytically both a two-state and a three-state Markov chain models. The analytical results obtained with the two-state Markov chain model allows us to obtain a data collapse of the 20 measured MET profiles in a single master curve.
Physica A: Statistical Mechanics and its Applications, 1995
We review evidence supporting the idea that the DNA sequence in genes containing non-coding regio... more We review evidence supporting the idea that the DNA sequence in genes containing non-coding regions is correlated, and that the correlation is remarkably long range-indeed, nucleotides thousands of base pairs distant are correlated. We do not find such a long-range correlation in the coding regions of the gene. We resolve the problem of the "non-stationarity" feature of the sequence of base pairs by applying a new algorithm called detrendedfluctuation analysis (DFA). We address the claim of Voss that there is no difference in the statistical properties of coding and non-coding regions of DNA by systematically applying the DFA algorithm, as well as standard FFT analysis, to every DNA sequence (33 301 coding and 29 453 non-coding) in the entire GenBank database. Finally, we describe briefly some recent work showing that the noncoding sequences have certain statistical features in common with natural and artificial languages. Specifically, we adapt to DNA the Zipf approach to analyzing linguistic texts. These statistical properties of non-coding sequences support the possibility that non-coding regions of DNA may carry biological information.
New Journal of Physics, 2010
Large trades in a financial market are usually split into smaller parts and traded incrementally ... more Large trades in a financial market are usually split into smaller parts and traded incrementally over extended periods of time. We address these large trades as hidden orders. In order to identify and characterize hidden orders we fit hidden Markov models to the time series of the sign of the tick by tick inventory variation of market members of the Spanish Stock Exchange. Our methodology probabilistically detects trading sequences, which are characterized by a net majority of buy or sell transactions. We interpret these patches of sequential buying or selling transactions as proxies of the traded hidden orders. We find that the time, volume and number of transactions size distributions of these patches are fat tailed. Long patches are characterized by a high fraction of market orders and a low participation rate, while short patches have a large fraction of limit orders and a high participation rate. We observe the existence of a buy-sell asymmetry in the number, average length, average fraction of market orders and average participation rate of the detected patches. The detected asymmetry is clearly depending on the local market trend. We also compare the hidden Markov models patches with those obtained with the segmentation method used in Vaglica et al. (2008) and we conclude that the former ones can be interpreted as a partition of the latter ones.
Journal of Economic Behavior & Organization, 2010
We discuss some methods to quantitatively investigate the properties of correlation matrices. Cor... more We discuss some methods to quantitatively investigate the properties of correlation matrices. Correlation matrices play an important role in portfolio optimization and in several other quantitative descriptions of asset price dynamics in financial markets. Specifically, we discuss how to define and obtain hierarchical trees, correlation based trees and networks from a correlation matrix. The hierarchical clustering and other procedures performed on the correlation matrix to detect statistically reliable aspects of the correlation matrix are seen as filtering procedures of the correlation matrix. We also discuss a method to associate a hierarchically nested factor model to a hierarchical tree obtained from a correlation matrix. The information retained in filtering procedures and its stability with respect to statistical fluctuations is quantified by using the Kullback-Leibler distance.
Fractals, 1997
We perform a numerical study of the statistical properties of natural texts written in English an... more We perform a numerical study of the statistical properties of natural texts written in English and of two types of artificial texts. As statistical tools we use the conventional Zipf analysis of the distribution of words and the inverse Zipf analysis of the distribution of frequencies of words, the analysis of vocabulary growth, the Shannon entropy and a quantity which is a nonlinear function of frequencies of words, the frequency…
Abstract—One of the key enabler to the productivity and efficiency shift foreseen by SESAR will b... more Abstract—One of the key enabler to the productivity and efficiency shift foreseen by SESAR will be the business-trajectory concept. The path to a deep understanding of how this new concept impacts on the future SESAR Air Traffic Management scenario goes through a better understanding of the actual air traffic network, and this will be done in the present paper by analyzing traffic data within the framework of complex network analysis. In this paper we will consider flights trajectory data from the Data Demand Repository database. ...
We investigate the statistical properties of n-tuples inverted repeats allowing the possible exis... more We investigate the statistical properties of n-tuples inverted repeats allowing the possible existence of cruciform structures in 37 recently sequenced complete genomes of prokaryotic organisms. Cruciform structures are non-B-DNA conformations. The biological role of these non-B-DNA structures is unknown. Our comparative analysis of their occurrence in complete genomes suggests that they should play a relevant biological role in most of prokaryotic organisms. In fact, we detect the presence of a large number of ...
APS Meeting Abstracts, Mar 1, 2001
The price dynamics of a set of equities traded in an efficient market is pretty complex. It consi... more The price dynamics of a set of equities traded in an efficient market is pretty complex. It consists of almost not redundant time series which have (i) long-range correlated volatility and (ii) cross-correlation between each pair of equities. We perform a study of the statistical properties of an ensemble of equities returns which is fruitful to elucidate the nature and role of time and ensemble correlation. Specifically, we investigate a statistical ensemble of daily returns of n equities traded in United States financial markets. For each trading day of our database, we study ...
Presentation of Observatory of Complex Systems, Instituto Nazionale per la Fisica della Materia–Unita di Palermo, Jul 1, 2003
Frontiers in Neural Circuits, 2015
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Papers by Rosario N Mantegna