This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in an electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with...

The puzzling evidence of seemingly high momentum returns is related to an understanding of risk as a simple covariance. If we consider, however, risk in higher-order statistical moments, momentum returns appear less advantageous. Thus, a prospect-theoretical assessment of US stock momentum...

Using a new data set on investor sentiment we show that institutional and individual sentiment proxy for smart money and noise trader risk, respectively. First, using bias-adjusted long-horizon regressions, we document that institutional sentiment forecasts stock market returns at intermediate...

We show that information about the counterparty of a trade affects the future trading decisions of individual traders. The effect is such that traders tend to reverse their order flow in line with the better-informed counterparties. Informed traders primarily incorporate their own private as...

We generalize the construction of the multifractal random walk (MRW) due to Bacry, Delour and Muzy to take into account the asymmetric character of the financial returns. We show how one can include in this class of models the observed correlation between past returns and future volatilities, in...

We investigate quantitatively the so-called leverage effect, which corresponds to a negative correlation between past returns and future volatility. For individual stocks, this correlation is moderate and decays exponentially over 50 days, while for stock indices, it is much stronger but decays...

We consider the problem of option pricing and hedging when stock returns are correlated in time. Within a quadratic-risk minimisation scheme, we obtain a general formula, valid for weakly correlated non-Gaussian processes. We show that for Gaussian price increments, the correlations are...

It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained using conditional averages within a simple one-factor description. Using surrogate data with the true market return as the...

We propose a new 'hedged' Monte-Carlo (HMC) method to price financial derivatives, which allows to determine simultaneously the optimal hedge. The inclusion of the optimal hedging strategy allows one to reduce the financial risk associated with option trading, and for the very same reason...

We present compelling empirical evidence for a new interpretation of the Forward Rate Curve (FRC) term structure. We find that the average FRC follows a square-root law, with a prefactor related to the spot volatility, suggesting a Value-at-Risk like pricing. We find a striking correlation...