You and your colleagues are invited to attend the Cornell – Citi Financial Data Science Webinars. Through the online talks this semester, we are excited to collaborate with Citi in highlighting machine learning applications in finance.
All webinars are from 5:00 pm to 6:00 pm.
This webinar is free and open to all guests. Registration is required (RSVP). You will receive the webinar link and dial-in info upon registration.
Date: Tuesday, Oct. 6th, 2020
Time: 5:00 pm – 6:00 pm EDT
Speaker: Rama Cont | Oxford University
Title: “Cross-Impact in Equity Markets” – Joint work with Francesco CapponiData Science in Financial Markets: Hype vs. Useful Practical Reality
Abstract
The empirical finding that market movements in stock prices may be correlated with the order flow of other stocks has led to the notion of “cross-impact” and has prompted the development of multivariate models of market impact. These models are parameterized by a matrix of impact coefficients whose off-diagonal elements are meant to capture how trades in one asset influence the price of other assets, leading to a large number of ‘cross-impact’ parameters which may not be identified solely based on the covariance of returns with order flow. Moreover, empirical evidence suggests that these cross-impact terms are unstable and change signs randomly over time, which poses a problem for their interpretation and use.
We show that the observed correlations between the returns of an asset and the order flow imbalance (OFI) of other assets have a simpler explanation in terms of common components in order to flow across stocks. This commonality in order flow arises naturally from multi-asset trading strategies such as index or ETF portfolios. We provide empirical evidence from order flow and price changes of NASDAQ-100 stocks to support this explanation. Our results show the main determinants of impact to be each stock’s own order flow imbalance (OFI) and the common component of OFI across stocks. Additional ‘cross-impact’ terms account for less than 1% of the total impact. This leads to a parsimonious approach for modeling multi-asset impact, which does not require introducing any “cross-impact” coefficients
Speaker Bio
Rama Cont is a Professor of Mathematics and Chair of Mathematical Finance at Oxford University. He has held previous positions at Columbia University, Imperial College London, Ecole Polytechnique, and Sorbonne University, and has served as an advisor to IMF, ECB, CME, ICE Clear, Norges Bank, Bovespa, and the US Office of Financial Research. His research focuses on stochastic processes and mathematical modeling in finance, with a focus on market instabilities and systemic risk.
He is a recipient of the Louis Bachelier Prize (2010) and the Royal Society Award for Excellence in Interdisciplinary Research (2017), and was elected Fellow of the Society for Industrial and Applied Mathematics (SIAM) in 2017 for his ‘contributions to stochastic analysis and mathematical modeling in finance.’
We hope to see you online!
The Cornell-Citi Team
**Please excuse any duplication of this announcement
Previous CFEM Events
Sep. 1st, 2020
Speaker: Michael Rabadi (Balyasny Asset Management)
Upcoming CFEM Events
Nov. 17, 2020
Speaker: Paul Besson (Euronext)