It is shown here that market crashes and bubbles can arise without external shocks. Sudden changes in behavior coming after a long period of stationarity may be the result of endogenous information processing. Except for the daily observation of the market, there is no new information, no...

There are three crucial mathematical system concepts in Finance, which are either being confused or misapplied - uncertainty, complexity and rank. First, the concept of epistemic uncertainty is sufficient for modeling and the concept of probability is unnecessary. This is illustrated by...

We argue that the conventional predictive regression between implied volatility (regressor) and realized volatility over the remaining life of the option (regressand) is likely to be a fractional cointegrating relation. Since cointegration is associated with long-run comovements, this finding...

We present a survey on the role of initial public offerings (IPOs) and venture capital (VC) in Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at all and only a minor role thereafter. In addition, companies that chose an IPO were much older and larger than the...

Liquidity problems lie at the heart of crises on financial markets as demonstrated in this paper by detailed descriptions of the stock market crash in 1987, the LTCM-crisis in 1998 and the financial market consequences of 11 September 2001. The events also demonstrate that modern central banks,...

This paper examines how "green" investors can induce firms to invest in clean production technology. The 1-period model incorporates heterogeneous agents - Markowitz investors and green investors – and two groups of firms working either with clean or polluting technology. Since green investors...

A Bayesian approach to option pricing is presented, in which posterior inference about the underlying returns process is conducted implicitly, via observed option prices. A range of models which allow for conditional leptokurtosis, skewness and time-varying volatility in returns, are considered,...

In the U.S. campaign contributions by companies play a major role in financing election campaigns. We analyze contributions by companies before an election and stock market performance after the election for the presidential elections from 1992 until 2004. We find that (i) the percentage of...

The paper offers an alternative approach to analyzing stock market time series data. The purpose is to develop descriptive, more intuitive, and closer to reality analogs of the behavior of US stock market prices, as indexed by the S&P500 stock price index covering the period October 2003 to...

We construct an empirical model for daily highs and daily lows of US stock indexes based on the intuition that highs and lows do not drift apart over time. Our empirical results show that daily highs and lows of three main US stock price indexes are cointegrated. Data on openings, closings, and...