Institute of Information Theory and Automation

Financial Econometrics

Field characteristic

A research in the financial econometrics is on the cutting edge of the current research. Financial markets have very complex nature and cannot be easily understood using simple, tractable models. Thus the financial markets are investigated from the various perspectives.

 The most important one, heterogeneous agents approach, shifts the traditional paradigm of financial markets from the fully rational agent to the agent with rationality constraints. Thus traditional efficient market hypothesis can be abandoned and stock markets can be viewed as a system of the interacting heterogeneous agents. The idea of bounded rationality in the market participants' decisions is also supported by the fractal features of the stock market prices.

 The notion of multifractality incorporates different investment horizons of the market players with potentially various dynamics. Closely related to fractality is a research on long-range dependence of volatility. A combination of these two phenomena brings new approaches to financial econometrics, and new theoretical and empirical results. Our research also includes the study of stock market crashes, which have great impact on our society and are of a great interest.

 Finally, part of our research team focuses also on the high-frequency data analysis. In recent years, this research changed direction thanks to availability of high-frequency data and so-called realized measures became a workhorse of financial econometrics. While they have appealing asymptotic features, the assumptions on zero microstructure noise and no jump presence in the data are too restrictive. These observations cause a large bias to most of the estimators. While inference under the noise and jumps in realized variation theory is widely studied in recent contributions, realized covariation theory still waits for its development. The covariation between asset returns is crucial in risk management, portfolio optimization and trading strategies as well as for option pricing. Wavelet methods allow us to study volatility and correlations on various investment horizons.

 

People

Selected publications

  • Barunik J., Kristoufek L. (2010): On Hurst exponent estimation under heavy-tailed distributions, Physica A: Statistical Mechanics and its Applications, 389 (18), pp. 3844-3855
  • Barunik J., Vacha L. (2010): Monte Carlo-based tail exponent estimator, Physica A: Statistical Mechanics and its Applications, 389 (21), pp. 4863-4874 
  • Barunik, J., Vosvrda, M. (2009): Can a stochastic cusp catastrophe model explain stock market crashes? Journal of Economic Dynamics and Control 33, pp. 1824-1836  
  • Barunik J., Vacha L., Vosvrda M. (2009): Smart predictors in the heterogeneous agent model, Journal of Economic Interaction and Coordination, vol. 4(2), pp. 163-172, Springer 
  • Derviz Alexis, Podpiera J. :  Predicting Bank CAMELS and S&P Ratings. The Case of Czech Republic , Emerging Markets Finance and Trade vol.44, 1 (2008), p. 87-101 
  • Derviz Alexis :  Asset Return Dynamics and the FX Risk Premium in a Decentralized Dealer Market , European Economic Review vol.48, 4 (2004), p. 747-784
  • Horvath R. (2009): Time-Varying Policy Neutral Rate in Real Time: A Predictor for Future Inflation?, Economic Modelling, pp. 71-81 
  • Horvath R. (2007) Ready for Euro? Evidence on EU New Member States, Applied Economics Letters, pp. 1083-1086 
  • Kristoufek L. (2010): Local Scaling Properties and Market Turning Points at Prague Stock Exchange, Acta Physica Polonica B, Vol. 41, No. 6 
  • Vošvrda Miloslav, Vácha Lukáš :  Heterogeneous Agents Model with the Worst Out Algorithm , Czech Economic Review, 1 (2007), p. 54-66   

Grants and projects 

  • System and Non-system Components of a Quotation Risk in the Czech Economy
    Alexis Derviz, grant No. 402/05/0671 of the Czech Science Foundation.
  • New Approach to Monitoring and Forecasting Financial Markets
    Miloslav Vošvrda, grant No. 402/09/0965 of the Czech Science Foundation.
  • Nonlinear Dynamics in Monetary and Financial Economics. Theory and Empirical Models
    Jan Kodera, Miloslav Vošvrda, grant No. 402/09/H045 of the Czech Science Foundation.
  • Monetary Policy Financial Stability and Financial Crisis
    Horvath Roman, grant No. P402/11/1487 of the Czech Science Foundation.
  • Analysis of the Heterogeneous Agents Models in Finance
    Vácha Lukáš, grant No. 402/08/P207 of the Czech Science Foundation.
  • New Nonlinear Capital Markets Theories: Fractal, Bifurcational and Behavioral Approach  
     Baruník Jozef, grant 46108 Science Foundation of the Charles University
  • Fractality and multi-fractality of Financial Markets: Methods and Applications  
     Krištoufek Ladislav, grant 5183 Science Foundation of the Charles University

 

 

 

 

 

 

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Last modification: 01.02.2011
Institute of Information Theory and Automation