Research articles for the 2020-07-26

A Novel Ensemble Deep Learning Model for Stock Prediction Based on Stock Prices and News
Yang Li,Yi Pan

In recent years, machine learning and deep learning have become popular methods for financial data analysis, including financial textual data, numerical data, and graphical data. This paper proposes to use sentiment analysis to extract useful information from multiple textual data sources and a blending ensemble deep learning model to predict future stock movement. The blending ensemble model contains two levels. The first level contains two Recurrent Neural Networks (RNNs), one Long-Short Term Memory network (LSTM) and one Gated Recurrent Units network (GRU), followed by a fully connected neural network as the second level model. The RNNs, LSTM, and GRU models can effectively capture the time-series events in the input data, and the fully connected neural network is used to ensemble several individual prediction results to further improve the prediction accuracy. The purpose of this work is to explain our design philosophy and show that ensemble deep learning technologies can truly predict future stock price trends more effectively and can better assist investors in making the right investment decision than other traditional methods.

AI in FinTech: A Research Agenda
Longbing Cao

Smart FinTech has emerged as a new area that synthesizes and transforms AI and finance, and broadly data science, machine learning, economics, etc. Smart FinTech also transforms and drives new economic and financial businesses, services and systems, and plays an increasingly important role in economy, technology and society transformation. This article presents a highly summarized research overview of smart FinTech, including FinTech businesses and challenges, various FinTech-associated data and repositories, FinTech-driven business decision and optimization, areas in smart FinTech, and research methods and techniques for smart FinTech.

Classifying Financial Markets up to Isomorphism
John Armstrong

Two markets should be considered isomorphic if they are financially indistinguishable. We define a notion of isomorphism for financial markets in both discrete and continuous time. We then seek to identify the distinct isomorphism classes, that is to classify markets.

We classify complete one-period markets. We define an invariant of continuous time complete markets which we call the absolute market price of risk. This invariant plays a role analogous to the curvature in Riemannian geometry. We classify markets when the absolute market price of risk is deterministic.

We show that, in general, markets with non-trivial automorphism groups admit mutual fund theorems. We prove a number of such theorems.

Effects of dynamic capability and marketing strategy on the organizational performance of the banking sector in Makassar, Indonesia
Akhmad Muhammadin,Rashila Ramli,Syamsul Ridjal,Muhlis Kanto,Syamsul Alam,Hamzah Idris

The dynamic capability and marketing strategy are challenges to the banking sector in Indonesia. This study uses a survey method solving 39 banks in Makassar. Data collection was conducted of questionnaires. The results show that, the dynamic capability has a positive yet insignificant impact on the organizational performance, the marketing strategy has a positive and significant effect on organizational performance and, dynamic capability and marketing strategy have a positive and significant effect on the organization's performance in the banking sector in Makassar. Keywords : dynamic capability, marketing strategy, organizational performance, banking

Equity warrant pricing under subdiffusive fractional Brownian motion of the short rate
Foad Shokrollahi,Marcin Marcin Magdziarz

In this paper we propose an extension of the Merton model. We apply the subdiffusive mechanism to analyze equity warrant in a fractional Brownian motion environment, when the short rate follows the subdiffusive fractional Black-Scholes model. We obtain the pricing formula for zero-coupon bond in the introduced model and derive the partial differential equation with appropriate boundary conditions for the valuation of equity warrant. Finally, the pricing formula for equity warrant is provided under subdiffusive fractional Brownian motion model of the short rate.

Gender Inequality in Research Productivity During the COVID-19 Pandemic
Ruomeng Cui,Hao Ding,Feng Zhu

We study the disproportionate impact of the lockdown as a result of the COVID-19 outbreak on female and male academics' research productivity in social science. The lockdown has caused substantial disruptions to academic activities, requiring people to work from home. How this disruption affects productivity and the related gender equity is an important operations and societal question. We collect data from the largest open-access preprint repository for social science on 41,858 research preprints in 18 disciplines produced by 76,832 authors across 25 countries over a span of two years. We use a difference-in-differences approach leveraging the exogenous pandemic shock. Our results indicate that, in the 10 weeks after the lockdown in the United States, although the total research productivity increased by 35%, female academics' productivity dropped by 13.9% relative to that of male academics. We also show that several disciplines drive such gender inequality. Finally, we find that this intensified productivity gap is more pronounced for academics in top-ranked universities, and the effect exists in six other countries. Our work points out the fairness issue in productivity caused by the lockdown, a finding that universities will find helpful when evaluating faculty productivity. It also helps organizations realize the potential unintended consequences that can arise from telecommuting.

Home Advantage in the Brazilian Elite Football: Verifying managers' capacity to outperform their disadvantage
Carlos Denner dos Santos,Jessica Alves

Home advantage (HA) in football, soccer is well documented in the literature; however, the explanation for such phenomenon is yet to be completed, as this paper demonstrates that it is possible to overcome such disadvantage through managerial planning and intervention (tactics), an effect so far absent in the literature. To accomplish that, this study develops an integrative theoretical model of team performance to explain HA based on prior literature, pushing its limits to unfold the manager role in such a persistent pattern of performance in soccer. Data on one decade of the national tournament of Brazil was obtained from public sources, including information about matches and coaches of all 12 teams who played these competitions. Our conceptual modeling allows an empirical analysis of HA and performance that covers the effects of tactics, presence of supporters in matches and team fatigue via logistic regression. The results confirm the HA in the elite division of Brazilian soccer across all levels of comparative technical quality, a new variable introduced to control for a potential technical gap between teams (something that would turn the managerial influence null). Further analysis provides evidence that highlights managerial capacity to block the HA effect above and beyond the influences of fatigue (distance traveled) and density of people in the matches. This is the case of coaches Abel Braga, Marcelo Fernandes and Roger Machado, who were capable to reverse HA when playing against teams of similar quality. Overall, the home advantage diminishes as the comparative quality increases but disappears only when the two teams are of extremely different technical quality.

Infodemics: A call to action for interdisciplinary research
Stephan Leitner,Bartosz Gula,Dietmar Jannach,Ulrike Krieg-Holz,Friederike Wall

Research on infodemics, i.e., the rapid spread of (mis)information related to a hazardous event such as the COVID-19 pandemic, requires the integration of a multiplicity of scientific disciplines. The dynamics emerging from infodemics have the potential to generate complex behavioral patterns. For the field of Business and Economics, understanding these dynamics is of ultimate importance: it supports, for example, anticipating individual behavior, which might help reduce the uncertainty entailed by the COVID-19 pandemic and allows for assessing the efficiency of policy decisions to contain its effects. In addition to the field of Business and Economics, we take into account the following disciplines: Through the lens of Computer Science and Information Systems, the information accessible to individuals is central, whereby the way information spreads in a society is strongly affected by the employed algorithms for information provision and by personalization. From the perspective of Linguistics, specific language signals in communication which emerge during pandemics have to be taken into account (e.g., emotion-related words, avoiding causal terms). Considering linguistic patterns in the context of infodemics appears to be highly relevant as they strongly affect how information is interpreted, fact-checked, made sense of by non-expert persons, and the way misinformation is automatically detected. From a Cognitive Psychology point of view, the focus is on how motives, intuition and affect influence the search and evaluation of information, and on how cognitive processes, the digital information environment and linguistic patterns together shape individuals' understanding of critical events, risk perception and behavior. The perspective of Business and Economics allows for integrating these perspectives into the wider context of economic systems (e.g., organizations or the society).

Nursing Home Staff Networks and COVID-19
M. Keith Chen,Judith A. Chevalier,Elisa F. Long

Nursing homes and other long term-care facilities account for a disproportionate share of COVID-19 cases and fatalities worldwide. Outbreaks in U.S. nursing homes have persisted despite nationwide visitor restrictions beginning in mid-March. An early report issued by the Centers for Disease Control and Prevention identified staff members working in multiple nursing homes as a likely source of spread from the Life Care Center in Kirkland, Washington to other skilled nursing facilities. The full extent of staff connections between nursing homes---and the crucial role these connections serve in spreading a highly contagious respiratory infection---is currently unknown given the lack of centralized data on cross-facility nursing home employment. In this paper, we perform the first large-scale analysis of nursing home connections via shared staff using device-level geolocation data from 30 million smartphones, and find that 7 percent of smartphones appearing in a nursing home also appeared in at least one other facility---even after visitor restrictions were imposed. We construct network measures of nursing home connectedness and estimate that nursing homes have, on average, connections with 15 other facilities. Controlling for demographic and other factors, a home's staff-network connections and its centrality within the greater network strongly predict COVID-19 cases. Traditional federal regulatory metrics of nursing home quality are unimportant in predicting outbreaks, consistent with recent research. Results suggest that eliminating staff linkages between nursing homes could reduce COVID-19 infections in nursing homes by 44 percent.

Online Appendix & Additional Results for The Determinants of Social Connectedness in Europe
Michael Bailey,Drew Johnston,Theresa Kuchler,Dominic Russel,Bogdan State,Johannes Stroebel

In this online appendix we provide additional information and analyses to support "The Determinants of Social Connectedness in Europe." We include a number of case studies illustrating how language, history, and other factors have shaped European social networks. We also look at the effects of social connectedness. Our results provide empirical support for theoretical models that suggest social networks play an important role in individuals' travel decisions. We study variation in the degree of connectedness of regions to other European countries, finding a negative correlation between Euroscepticism and greater levels of international connection.

Ordering and Inequalities for Mixtures on Risk Aggregation
Yuyu Chen,Peng Liu,Yang Liu,Ruodu Wang

Aggregation sets, which represent model uncertainty due to unknown dependence, are an important object in the study of robust risk aggregation. In this paper, we investigate ordering relations between two aggregation sets for which the sets of marginals are related by two simple operations: distribution mixtures and quantile mixtures. Intuitively, these operations "homogenize" marginal distributions by making them similar. As a general conclusion from our results, more "homogeneous" marginals lead to a larger aggregation set, and thus more severe model uncertainty, although the situation for quantile mixtures is much more complicated than that for distribution mixtures. We proceed to study inequalities on the worst-case values of risk measures in risk aggregation, which represent conservative calculation of regulatory capital. Among other results, we obtain an order relation on VaR under quantile mixture for marginal distributions with monotone densities. Numerical results are presented to visualize the theoretical results and further inspire some conjectures. Finally, we discuss the connection of our results to joint mixability and to merging p-values in multiple hypothesis testing.

Pricing path-dependent Bermudan options using Wiener chaos expansion: an embarrassingly parallel approach
Jérôme Lelong

In this work, we propose a new policy iteration algorithm for pricing Bermudan options when the payoff process cannot be written as a function of a lifted Markov process. Our approach is based on a modification of the well-known Longstaff Schwartz algorithm, in which we basically replace the standard least square regression by a Wiener chaos expansion. Not only does it allow us to deal with a non Markovian setting, but it also breaks the bottleneck induced by the least square regression as the coefficients of the chaos expansion are given by scalar products on the L^2 space and can therefore be approximated by independent Monte Carlo computations. This key feature enables us to provide an embarrassingly parallel algorithm.

Regional Inequality Simulations Based on Asset Exchange Models with Exchange Range and Local Support Bias
Takeshi Kato,Yasuyuki Kudo,Hiroyuki Mizuno,Yoshinori Hiroi

To gain insights into the problem of regional inequality, we proposed new regional asset exchange models based on existing kinetic income-exchange models in economic physics. We did this by setting the spatial exchange range and adding bias to asset fraction probability in equivalent exchanges. Simulations of asset distribution and Gini coefficients showed that suppressing regional inequality requires, firstly an increase in the intra-regional economic circulation rate, and secondly the narrowing down of the exchange range (inter-regional economic zone). However, avoiding over-concentration of assets due to repeat exchanges requires adding a third measure; the local support bias (distribution norm). A comprehensive solution incorporating these three measures enabled shifting the asset distribution from over-concentration to exponential distribution and eventually approaching the normal distribution, reducing the Gini coefficient further. Going forward, we will expand these models by setting production capacity based on assets, path dependency on two-dimensional space, bias according to disparity, and verify measures to reduce regional inequality in actual communities.

Tile test for back-testing risk evaluation
Gilles Zumbach

A new test for measuring the accuracy of financial market risk estimations is introduced. It is based on the probability integral transform (PIT) of the ex post realized returns using the ex ante probability distributions underlying the risk estimation. If the forecast is correct, the result of the PIT, that we called probtile, should be an iid random variable with a uniform distribution. The new test measures the variance of the number of probtiles in a tiling over the whole sample. Using different tilings allow to check the dynamic and the distributional aspect of risk methodologies. The new test is very powerful, and new benchmarks need to be introduced to take into account subtle mean reversion effects induced by some risk estimations. The test is applied on 2 data sets for risk horizons of 1 and 10 days. The results show unambiguously the importance of capturing correctly the dynamic of the financial market, and exclude some broadly used risk methodologies.

V-, U-, L-, or W-shaped recovery after COVID? Insights from an Agent Based Model
Dhruv Sharma,Jean-Philippe Bouchaud,Stanislao Gualdi,Marco Tarzia,Francesco Zamponi

We discuss the impact of a Covid-like shock on a simple toy economy, described by the Mark-0 Agent-Based Model that we developed and discussed in a series of previous papers. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our toy economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss. This is due to the existence of a self-sustained "bad" state of the economy. We then discuss two policies that attempt to moderate the impact of the shock: giving easy credit to firms, and the so-called helicopter money, i.e. injecting new money into the households savings. We find that both policies are effective if strong enough, and we highlight the potential danger of terminating these policies too early. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to allow for a much wider exploration, thus serving as a useful tool for the qualitative understanding of post-Covid recovery. We provide an on-line version of the code at .

Volatility Spillovers between Major International Financial Markets During the COVID-19 Pandemic
Wang, Dong,Li, Ping,Huang, Lixin
This paper studies the dynamic change of volatility spillovers between several major international financial markets during the global COVID-19 pandemic using Diebold and Yilmaz’s connectedness index. We found that the total volatility spillover in this March reached its highest level of recent ten years, while the pandemic developed to its worst stage in this April. Results of total directional spillover show that American and British stock markets are main spillover transmitters during the pandemic, while Chinese and Japanese stock markets, as well as GBP/USD exchange rate are spillover recipients. The pairwise directional spillover between American and British stock markets is larger than other pairs. GBP/USD exchange rate and WTI crude oil futures market mainly receive spillovers from American stock market. Results show that the COVID-19 pandemic has caused huge shocks to international financial markets, especially of those countries with severe pandemics, and the pandemic led to increased spillovers between financial markets.