Research articles for the 2021-02-15

Aggregate Modeling and Equilibrium Analysis of the Crowdsourcing Market for Autonomous Vehicles
Xiaoyan Wang,Xi Lin,Meng Li

Autonomous vehicles (AVs) have the potential of reshaping the human mobility in a wide variety of aspects. This paper focuses on a new possibility that the AV owners have the option of "renting" their AVs to a company, which can use these collected AVs to provide on-demand ride services without any drivers. We call such a mobility market with AV renting options the "AV crowdsourcing market". This paper establishes an aggregate equilibrium model with multiple transport modes to analyze the AV crowdsourcing market. The modeling framework can capture the customers' mode choices and AV owners' rental decisions with the presence of traffic congestion. Then, we explore different scenarios that either maximize the crowdsourcing platform's profit or maximize social welfare. Gradient-based optimization algorithms are designed for solving the problems. The results obtained by numerical examples reveal the welfare enhancement and the strong profitability of the AV crowdsourcing service. However, when the crowdsourcing scale is small, the crowdsourcing platform might not be profitable. A second-best pricing scheme is able to avoid such undesirable cases. The insights generated from the analyses provide guidance for regulators, service providers and citizens to make future decisions regarding the utilization of the AV crowdsourcing markets for serving the good of the society.

Assessment of a failure prediction model in the energy sector: a multicriteria discrimination approach with Promethee based classification
Silvia Angilella,Maria Rosaria Pappalardo

This study presents the implementation of a non-parametric multiple criteria decision aiding (MCDA) model, the Multi-group Hierarchy Discrimination (M.H.DIS) model, with the Preference Ranking Organization Method for Enrichment Evaluations (PROMETHEE), on a dataset of 114 European unlisted companies operating in the energy sector. Firstly, the M.H.DIS model has been developed following a five-fold cross validation procedure to analyze whether the model explains and replicates a two-group pre-defined classification of companies in the considered sample, provided by Bureau van Dijk's Amadeus database. Since the M.H.DIS method achieves a quite limited satisfactory accuracy in predicting the considered Amadeus classification in the holdout sample, the PROMETHEE method has been performed then to provide a benchmark sorting procedure useful for comparison purposes.

Attraction Versus Persuasion
Pak Hung Au,Mark Whitmeyer

We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer's visit will glean. We characterize the unique symmetric equilibrium of this game, which, due to the countervailing incentives of attraction and persuasion, generates a payoff function for each firm that is linear in the firm's realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information--search frictions beget the first-best level of information provision. If not, this corresponds to information dispersion--firms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), firms reveal less information and information dispersion does not arise.

Canonical Correlation and Assortative Matching: A Remark
Arnaud Dupuy,Alfred Galichon

In the context of the Beckerian theory of marriage, when men and women match on a single-dimensional index that is the weighted sum of their respective multivariate attributes, many papers in the literature have used linear canonical correlation, and related techniques, in order to estimate these weights. We argue that this estimation technique is inconsistent and suggest some solutions.

Detecting and Quantifying Wash Trading on Decentralized Cryptocurrency Exchanges
Friedhelm Victor,Andrea Marie Weintraud

Cryptoassets such as cryptocurrencies and tokens are increasingly traded on decentralized exchanges. The advantage for users is that the funds are not in custody of a centralized external entity. However, these exchanges are prone to manipulative behavior. In this paper, we illustrate how wash trading activity can be identified on two of the first popular limit order book-based decentralized exchanges on the Ethereum blockchain, IDEX and EtherDelta. We identify a lower bound of accounts and trading structures that meet the legal definitions of wash trading, discovering that they are responsible for a wash trading volume in equivalent of 159 million U.S. Dollars. While self-trades and two-account structures are predominant, complex forms also occur. We quantify these activities, finding that on both exchanges, more than 30\% of all traded tokens have been subject to wash trading activity. On EtherDelta, 10% of the tokens have almost exclusively been wash traded. All data is made available for future research. Our findings underpin the need for countermeasures that are applicable in decentralized systems.

Exclusion of Extreme Jurors and Minority Representation: The Effect of Jury Selection Procedures
Andrea Moro,Martin Van der Linden

We compare two established jury selection procedures meant to safeguard against the inclusion of biased jurors that are also perceived as causing minorities to be under-represented in juries. The Strike and Replace procedure presents potential jurors one-by-one to the parties, while the Struck procedure presents all potential jurors before the parties exercise vetoes. In equilibrium, Struck more effectively excludes extreme jurors than Strike and Replace but leads to a worse representation of minorities. Simulations suggest that the advantage of Struck in terms of excluding extremes is sizable in a wide range of cases. In contrast, Strike and Replace only provides a significantly better representation of minorities if the minority and majority are heavily polarized. When parameters are estimated to match the parties' selection of jurors by race with jury-selection data from Mississippi in trials against black defendants, the procedures' outcomes are substantially different, and the size of the trade-off between objectives can be quantitatively evaluated.

How Misuse of Statistics Can Spread Misinformation: A Study of Misrepresentation of COVID-19 Data
Shailesh Bharati,Rahul Batra

This paper investigates various ways in which a pandemic such as the novel coronavirus, could be predicted using different mathematical models. It also studies the various ways in which these models could be depicted using various visualization techniques. This paper aims to present various statistical techniques suggested by the Centres for Disease Control and Prevention in order to represent the epidemiological data. The main focus of this paper is to analyse how epidemiological data or contagious diseases are theorized using any available information and later may be presented wrongly by not following the guidelines, leading to inaccurate representation and interpretations of the current scenario of the pandemic; with a special reference to the Indian Subcontinent.

NEU: A Meta-Algorithm for Universal UAP-Invariant Feature Representation
Anastasis Kratsios,Cody Hyndman

Effective feature representation is key to the predictive performance of any algorithm. This paper introduces a meta-procedure, called Non-Euclidean Upgrading (NEU), which learns feature maps that are expressive enough to embed the universal approximation property (UAP) into most model classes while only outputting feature maps that preserve any model class's UAP. We show that NEU can learn any feature map with these two properties if that feature map is asymptotically deformable into the identity. We also find that the feature-representations learned by NEU are always submanifolds of the feature space. NEU's properties are derived from a new deep neural model that is universal amongst all orientation-preserving homeomorphisms on the input space. We derive qualitative and quantitative approximation guarantees for this architecture. We quantify the number of parameters required for this new architecture to memorize any set of input-output pairs while simultaneously fixing every point of the input space lying outside some compact set, and we quantify the size of this set as a function of our model's depth. Moreover, we show that no deep feed-forward network with commonly used activation function has all these properties. NEU's performance is evaluated against competing machine learning methods on various regression and dimension reduction tasks both with financial and simulated data.

Personality Traits and the Marriage Market
Arnaud Dupuy,Alfred Galichon

Which and how many attributes are relevant for the sorting of agents in a matching market? This paper addresses these questions by constructing indices of mutual attractiveness that aggregate information about agents' attributes. The first k indices for agents on each side of the market provide the best approximation of the matching surplus by a k-dimensional model. The methodology is applied on a unique Dutch households survey containing information about education, height, BMI, health, attitude toward risk and personality traits of spouses.

Pricing FX Options under Intermediate Currency
S. Maurer,T.E. Sharp,M.V. Tretyakov

We suggest an intermediate currency approach that allows us to price options on all FX markets simultaneously under the same risk-neutral measure which ensures consistency of FX option prices across all markets. In particular, it is sufficient to calibrate a model to the volatility smile on the domestic market as, due to the consistency of pricing formulas, the model automatically reproduces the correct smile for the inverse pair (the foreign market). We first consider the case of two currencies and then the multi-currency setting. We illustrate the intermediate currency approach by applying it to the Heston and SABR stochastic volatility models, to the model in which exchange rates are described by an extended skewed normal distribution, and also to the model-free approach of option pricing

Quantification of Risk in Classical Models of Finance
Alois Pichler,Ruben Schlotter

This paper enhances the pricing of derivatives as well as optimal control problems to a level comprising risk. We employ nested risk measures to quantify risk, investigate the limiting behavior of nested risk measures within the classical models in finance and characterize existence of the risk-averse limit. As a result we demonstrate that the nested limit is unique, irrespective of the initially chosen risk measure. Within the classical models risk aversion gives rise to a stream of risk premiums, comparable to dividend payments. In this context we connect coherent risk measures with the Sharpe ratio from modern portfolio theory and extract the Z-spread -- a widely accepted quantity in economics to hedge risk. The results for European option pricing are then extended to risk-averse American options, where we study the impact of risk on the price as well as the optimal time to exercise the option. We also extend Merton's optimal consumption problem to the risk-averse setting.

REST: Relational Event-driven Stock Trend Forecasting
Wentao Xu,Weiqing Liu,Chang Xu,Jiang Bian,Jian Yin,Tie-Yan Liu

Stock trend forecasting, aiming at predicting the stock future trends, is crucial for investors to seek maximized profits from the stock market. Many event-driven methods utilized the events extracted from news, social media, and discussion board to forecast the stock trend in recent years. However, existing event-driven methods have two main shortcomings: 1) overlooking the influence of event information differentiated by the stock-dependent properties; 2) neglecting the effect of event information from other related stocks. In this paper, we propose a relational event-driven stock trend forecasting (REST) framework, which can address the shortcoming of existing methods. To remedy the first shortcoming, we propose to model the stock context and learn the effect of event information on the stocks under different contexts. To address the second shortcoming, we construct a stock graph and design a new propagation layer to propagate the effect of event information from related stocks. The experimental studies on the real-world data demonstrate the efficiency of our REST framework. The results of investment simulation show that our framework can achieve a higher return of investment than baselines.

Sentiment Correlation in Financial News Networks and Associated Market Movements
Xingchen Wan,Jie Yang,Slavi Marinov,Jan-Peter Calliess,Stefan Zohren,Xiaowen Dong

In an increasingly connected global market, news sentiment towards one company may not only indicate its own market performance, but can also be associated with a broader movement on the sentiment and performance of other companies from the same or even different sectors. In this paper, we apply NLP techniques to understand news sentiment of 87 companies among the most reported on Reuters for a period of seven years. We investigate the propagation of such sentiment in company networks and evaluate the associated market movements in terms of stock price and volatility. Our results suggest that, in certain sectors, strong media sentiment towards one company may indicate a significant change in media sentiment towards related companies measured as neighbours in a financial network constructed from news co-occurrence. Furthermore, there exists a weak but statistically significant association between strong media sentiment and abnormal market return as well as volatility. Such an association is more significant at the level of individual companies, but nevertheless remains visible at the level of sectors or groups of companies.

The corruptive force of AI-generated advice
Margarita Leib,Nils C. Köbis,Rainer Michael Rilke,Marloes Hagens,Bernd Irlenbusch

Artificial Intelligence (AI) is increasingly becoming a trusted advisor in people's lives. A new concern arises if AI persuades people to break ethical rules for profit. Employing a large-scale behavioural experiment (N = 1,572), we test whether AI-generated advice can corrupt people. We further test whether transparency about AI presence, a commonly proposed policy, mitigates potential harm of AI-generated advice. Using the Natural Language Processing algorithm, GPT-2, we generated honesty-promoting and dishonesty-promoting advice. Participants read one type of advice before engaging in a task in which they could lie for profit. Testing human behaviour in interaction with actual AI outputs, we provide first behavioural insights into the role of AI as an advisor. Results reveal that AI-generated advice corrupts people, even when they know the source of the advice. In fact, AI's corrupting force is as strong as humans'.

Time-varying properties of asymmetric volatility and multifractality in Bitcoin
Tetsuya Takaishi

This study investigates the volatility of daily Bitcoin returns and multifractal properties of the Bitcoin market by employing the rolling window method and examines relationships between the volatility asymmetry and market efficiency. Whilst we find an inverted asymmetry in the volatility of Bitcoin, its magnitude changes over time, and recently, it has become small. This asymmetric pattern of volatility also exists in higher frequency returns. Other measurements, such as kurtosis, skewness, average, serial correlation, and multifractal degree, also change over time. Thus, we argue that properties of the Bitcoin market are mostly time dependent. We examine efficiency-related measures: the Hurst exponent, multifractal degree, and kurtosis. We find that when these measures represent that the market is more efficient, the volatility asymmetry weakens. For the recent Bitcoin market, both efficiency-related measures and the volatility asymmetry prove that the market becomes more efficient.