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      The market nanostructure origin of asset price time reversal asymmetry

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          Abstract

          We introduce a framework to infer lead-lag networks between the states of elements of complex systems, determined at different timescales. As such networks encode the causal structure of a system, infering lead-lag networks for many pairs of timescales provides a global picture of the mutual influence between timescales. We apply our method to two trader-resolved FX data sets and document strong and complex asymmetric influence of timescales on the structure of lead-lag networks. Expectedly, this asymmetry extends to trader activity: for institutional clients in our dataset, past activity on timescales longer than 3 hours is more correlated with future activity at shorter timescales than the opposite (Zumbach effect), while a reverse Zumbach effect is found for past timescales shorter than 3 hours; retail clients have a totally different, and much more intricate, structure of asymmetric timescale influence. The causality structures are clearly caused by markedly different behaviors of the two types of traders. Hence, market nanostructure, i.e., market dynamics at the individual trader level, provides an unprecedented insight into the causality structure of financial markets, which is much more complex than previously thought.

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          Maps of random walks on complex networks reveal community structure

          To comprehend the multipartite organization of large-scale biological and social systems, we introduce a new information theoretic approach that reveals community structure in weighted and directed networks. The method decomposes a network into modules by optimally compressing a description of information flows on the network. The result is a map that both simplifies and highlights the regularities in the structure and their relationships. We illustrate the method by making a map of scientific communication as captured in the citation patterns of more than 6000 journals. We discover a multicentric organization with fields that vary dramatically in size and degree of integration into the network of science. Along the backbone of the network -- including physics, chemistry, molecular biology, and medicine -- information flows bidirectionally, but the map reveals a directional pattern of citation from the applied fields to the basic sciences.
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            Volatilities of different time resolutions — Analyzing the dynamics of market components

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              Statistically Validated Networks in Bipartite Complex Systems

              Many complex systems present an intrinsic bipartite structure where elements of one set link to elements of the second set. In these complex systems, such as the system of actors and movies, elements of one set are qualitatively different than elements of the other set. The properties of these complex systems are typically investigated by constructing and analyzing a projected network on one of the two sets (for example the actor network or the movie network). Complex systems are often very heterogeneous in the number of relationships that the elements of one set establish with the elements of the other set, and this heterogeneity makes it very difficult to discriminate links of the projected network that are just reflecting system's heterogeneity from links relevant to unveil the properties of the system. Here we introduce an unsupervised method to statistically validate each link of a projected network against a null hypothesis that takes into account system heterogeneity. We apply the method to a biological, an economic and a social complex system. The method we propose is able to detect network structures which are very informative about the organization and specialization of the investigated systems, and identifies those relationships between elements of the projected network that cannot be explained simply by system heterogeneity. We also show that our method applies to bipartite systems in which different relationships might have different qualitative nature, generating statistically validated networks in which such difference is preserved.
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                Author and article information

                Journal
                03 January 2019
                Article
                1901.00834
                d88b31b9-08a9-4dc0-a640-d6e2a6aa9345

                http://arxiv.org/licenses/nonexclusive-distrib/1.0/

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                Custom metadata
                19 pages, 10 figures, 1 table
                q-fin.ST stat.AP

                Applications,Statistical finance
                Applications, Statistical finance

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