The Analysis of Time Series: An Introduction, 4th edn. By C. Chatfield. ISBN 0 412 31820 2. Chapman and Hall, London, 1989. 242 pp. £13.50.

The Analysis of Time Series: An Introduction

Emotions appear to be a key determinant of behavior in cooperative relationships. Emotions affect behavior both directly, by motivating action, and indirectly, as actors anticipate others’ emotional responses. The influence of emotions is understandable once it is recognized that (a) the ability to benefit from cooperative relationships has been a key determinant of biological fitness throughout our species’ history, and (b) panhuman emotions are adaptations crafted by natural selection. Different emotions affect cooperative behavior in different ways: some emotions lead actors to forego the temptation to defect, some lead them to reciprocate harm suffered or benefits provided, and some lead them to repair damaged relationships. An important class of emotions influences cooperative behavior in part by motivating conformity to norms and/or punishment of norm violators. This chapter discusses thirteen emotions that seem to have the greatest impact on cooperation. In addition to reviewing empirical evidence of the role of emotions in cooperation, the chapter presents a variety of explanatory hypotheses and provides a number of discrete testable predictions.

Genetic and cultural evolution of cooperation

We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are validated against real data. Our empirical studies of order flow uncover several interesting regularities in the way trading orders are placed and cancelled. The resulting simple model of order flow is used to simulate price formation under a continuous double auction, and the statistical properties of the resulting simulated sequence of prices are compared to those of real data. The model is constructed using one stock (AZN) and tested on 24 other stocks. For low volatility, small tick size stocks (called Group I) the predictions are very good, but for stocks outside Group I they are not good. For Group I, the model predicts the correct magnitude and functional form of the distribution of the volatility and the bid-ask spread, without adjusting any parameters based on prices. This suggests that at least for Group I stocks, the volatility and heavy tails of prices are related to market microstructure effects, and supports the hypothesis that, at least on short time scales, the large fluctuations of absolute returns are well described by a power law with an exponent that varies from stock to stock.

An empirical behavioral model of liquidity and volatility

How does oil market uncertainty interact with other markets? An empirical analysis of implied volatility index

High-Frequency Trading and Price Discovery

This paper explores the cross-market dependence between five popular equity indices (S&P 500, NASDAQ 100, DAX 30, FTSE 100, and Nikkei 225), and their corresponding volatility indices (VIX, VXN, VDAX, VFTSE, and VXJ). In particular, we propose a dynamic mixed copula approach which is able to capture the time-varying tail dependence coefficient (TDC). The findings indicate the existence of financial contagion and significant asymmetric TDCs for major international equity markets. In some situations, although contagion cannot be clearly detected by stock index movements, it can be captured by dependence between volatility indices. The results imply that contagion is not only reflected in the first moment of index returns, but also the second moment, i.e. the volatility. Results also show that dependence between volatility indices is more easily influenced by financial shocks and reflects the instantaneous information faster than the stock market indices.

Analysing financial contagion and asymmetric market dependence with volatility indices via copulas

Allogrooming is a key aspect of chimpanzee sociality and many studies have investigated the role of reciprocity in a biological market. One theoretical form of reciprocity is time-matching, where payback consists of an equal duration of effort (e.g. twenty seconds of grooming repaid with twenty seconds of grooming). Here, we report a study of allogrooming in a group of twenty-six captive chimpanzees (Chester Zoo, UK), based on more than 150 hours of data. For analysis, we introduce a methodological innovation called the "Delta scale", which unidimensionally measures the accuracy of time-matching according to the extent of delay after the cessation of grooming. Delta is positive when reciprocation occurs after any non-zero delay (e.g. A grooms B and then B grooms A after a five second break) and it is negative when reciprocation begins whilst the original grooming has not yet ceased. Using a generalized linear mixed-method, we found evidence for time matched reciprocation. However, this was true only for immediate reciprocation (Delta less than zero). If there was a temporal break in grooming between two members of a dyad, then there was no evidence that chimpanzees were using new bouts to retroactively correct for time-matching imbalances from previous bouts. Our results have implications for some of the cognitive constraints that differentiate real-life reciprocation from abstract theoretical models. Furthermore, we suggest that some apparent patterns of time-matched reciprocity may arise merely due to the law of large numbers, and we introduce a statistical test which takes this into account when aggregating grooming durations over a window of time.

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Precise time-matching in chimpanzee allogrooming does not occur after a short delay

We investigate the viability of Type-2 fuzzy systems in high frequency trading.We propose Type-2 models based on a generalisation of the popular ANFIS model.Type-2 models score significant risk adjusted performance improvements over Type-1.Benefits of Type-2 models increase with higher trading frequencies. In this paper, we investigate the ability of higher order fuzzy systems to handle increased uncertainty, mostly induced by the market microstructure noise inherent in a high frequency trading (HFT) scenario. Whilst many former studies comparing type-1 and type-2 Fuzzy Logic Systems (FLSs) focus on error reduction or market direction accuracy, our interest is predominantly risk-adjusted performance and more in line with both trading practitioners and upcoming regulatory regimes. We propose an innovative approach to design an interval type-2 model which is based on a generalisation of the popular type-1 ANFIS model. The significance of this work stems from the contributions as a result of introducing type-2 fuzzy sets in intelligent trading algorithms, with the objective to improve the risk-adjusted performance with minimal increase in the design and computational complexity. Overall, the proposed ANFIS/T2 model scores significant performance improvements when compared to both standard ANFIS and Buy-and-Hold methods. As a further step, we identify a relationship between the increased trading performance benefits of the proposed type-2 model and higher levels of microstructure noise. The results resolve a desirable need for practitioners, researchers and regulators in the design of expert and intelligent systems for better management of risk in the field of HFT.

Improving risk-adjusted performance in high frequency trading using interval type-2 fuzzy logic

Enhancing risk-adjusted performance of stock market intraday trading with Neuro-Fuzzy systems

This paper introduces an adaptive neuro-fuzzy inference system (ANFIS) for financial trading, which learns to predict price movements from training data consisting of intraday tick data sampled at high frequency. The empirical data used in our investigation are five-minute mid-price time series from FX markets. The ANFIS optimisation involves back-testing as well as varying the number of epochs, and is combined with a new method of capturing volatility using an event-driven approach that takes into consideration directional changes within pre-specified thresholds. The results show that the proposed model outperforms standard strategies such as buy-and-hold or linear forecasting.

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Wing Lon Ng

Papers

Analysing financial contagion and asymmetric market dependence with volatility indices via copulas

Precise time-matching in chimpanzee allogrooming does not occur after a short delay

Improving risk-adjusted performance in high frequency trading using interval type-2 fuzzy logic

Enhancing risk-adjusted performance of stock market intraday trading with Neuro-Fuzzy systems

Intraday high-frequency FX trading with adaptive neuro-fuzzy inference systems