In the context of a two-state, two-trader financial market herd model introduced by Avery and Zemsky (1998) we investigate how informational ambiguity in conjunction with waves of optimism and pessimism affect investor behavior, social learning and price dynamics. Without ambiguity, neither...

We cross-sectionally analyze the presence of aggregated hidden depth and trade volume in the S&P 500 and identify its key determinants. We find that the spread is the main predictor for a stock's hidden dimension, both in terms of traded and posted liquidity. Our findings moreover suggest that...

The paper proposes a data driven adaptive model selection strategy. The selection criterionmeasures economic ex-ante forecasting content by means of trading implied cash flows.Empirical evidence suggests that the proposed strategy is neither exposed to selection biasnor to the risk of choosing...

In this paper we adopt a principal components analysis (PCA) to reduce the dimensionality of the term structure and employ autoregressive models (AR) to forecast principal components which, in turn, are used to forecast swap rates. Arguing in favor of structural variation, we propose data...

Weather inuences our daily lives and choices and has an enormous impact on corporate revenues andearnings. Weather derivatives dier from most derivatives in that the underlying weather cannot be tradedand their market is relatively illiquid. The weather derivative market is therefore incomplete....

Many business people such as farmers and financial investors are affected by indirect losses caused by scarce or abundant rainfall. Because of the high potential of insuring rainfall risk, the Chicago Mercantile Exchange (CME) began trading rainfall derivatives in 2011. Compared to temperature...

Recently the topic of global warming has become very popular. The literature has concentrated its attention on the evidence of such effect, either by detecting regime shifts or change points in time series. The majority of these methods are designed to find shifts in mean, but only few can do...

Weather derivatives (WD) are different from most financial derivatives because the underlying weather cannot be traded and therefore cannot be replicated by other financial instruments. The market price of risk (MPR) is an important parameter of the associated equivalent martingale measures used...

In this study we forecast the term structure of FIBOR/EURIBOR swap rates by means of recursive vector autoregressive (VAR) models. In advance, a principal components analysis (PCA) is adopted to reduce the dimensionality of the term structure. To evaluate ex-ante forecasting performance for...

The paper proposes a data driven adaptive model selection strategy. The selection crite- rion measures economic exante forecasting content by means of trading implied cash flows. Empirical evidence suggests that the proposed strategy is neither exposed to selection bias nor to the risk of...