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Financial Markets and Macroeconomic Activity
Tackling the complexity of financial markets: A well-functioning financial sector is crucial for a healthy economy. The 2008/2009 financial crisis has shown how the failure of single components can spill over to the whole sector and, in the end, cause huge damage to the world economy. It indicates the importance of attempts to find diagnostic tools for identification of sources of economic and financial instability.
The aim of this RA is to contribute to a deeper understanding of the magnitude as well as the structure of risks in the financial sector. Topics investigated cover the structure of interactions and network patterns among market participants, the emergence of speculative bubbles, the role of behavioral biases, and the econometric analysis of asset price dynamics.
Special Expertise
RA staff members combine expertise in behavioral finance, empirical finance and macro finance and thus are able to pursue a unique research program at the interface of these areas. From a technical perspective, the RA benefits from a long tradition of research based on dynamic system theory, which allows tackling the often complex dynamics that arise from the interactions of economic agents. The group is one of not more than three or four worldwide the pursue this highly innovative research avenue.
Think Tank Activities
Work is frequently presented at international conferences, often in invited keynote talks. The senior researchers have regularly been coorganizers of international conferences and workshops (especially on the causes of and the lessons from the current financial crisis), and they serve on the editorial boards of prominent journals. Activities to inform a broader public about the research of the group included participation at public panel discussions, interviews and contributions to newspapers and weekly magazines.
Projects
Recent Publications
- Alfarano, S., Lux, T. (2007). A Minimal Noise Trader Model with Realistic Time Series Properties. G. Teysierre and A. Kirman (eds), Long Memory in Economics. Springer, Berlin.
- Alfarano, S., Milakovic, M., Raddant, M. (Forthcoming). A Note on institutional hierarchy and volatility in financial markets. The European Journal of Finance, Routledge
- Alfarano, S., Lux, T. (2010). Extreme Value Theory as a Theoretical Background for Power Law Behavior. Kiel Working Paper, 1648, Kiel Institute for the World Economy, Kiel, 10 pp.
- Alfarano, S., Lux, T., Milakovic, M. (2010). Topical issue on "Interdisciplinary Applications of Physics in Economics and Finance". The European Physical Journal B, 73(1), 1-2.
- Alfarano, S., Lux, T., Wagner, F. (2008). Time Variation of Higher Moments in Financial Markets with Heterogeneous Agents: An Analytical Approach. Journal of Economic Dynamics and Control, 32 (1), 101-136.
- Aßmann, C., Boysen-Hogrefe, J. (2011). A Bayesian Approach to Model-Based Clustering for Binary Panel Probit Models. Computational Statistics and Data Analysis, 55(1), 261-279.
- Aßmann, C., Boysen-Hogrefe, J. (Forthcoming). Determinants of Government Bond Spreads in the Euro: In Good Times as in Bad. Empirica.
- Birnbaum, M., Schmidt, U. (2010). Allais Paradoxes Can be Reversed by Presenting Choices in Canonical Split Form. Kiel Working Papers, 1615, Institut für Weltwirtschaft, Kiel, 28 S.
- Birnbaum, M., Schmidt, U. (2008). An Experimental Investigation of Violations of Transitivity in Choice under Uncertainty. Journal of Risk and Uncertainty, 37(1), 77-91.
- Birnbaum, M., Schmidt, U., , M. (2010). Testing Independence Conditions in the Presence of Errors and Splitting Effects. Kiel Working Papers, 1614, Institut für Weltwirtschaft, Kiel, 27 S.
- Birnbaum, M., Schmidt, U. (2010). Testing Transitivity in Choice under Risk. Theory and Decision, 69 (4), 599-614.
- Bleichrodt, H., Schmidt, U., Zank, H. (2009). Additive Utility in Prospect Theory. Management Science, 55(5), 863-873.
- Cincotti, S., Gardini, L., Lux, T. (2008). Special issue on "New Advances in Financial Economics: Heterogeneity and Simulation". Computational Economics, 32 (1-2)
- Colander, D., Foellmer, H., Haas, A., Kirman, A., Juselius, K., Sloth, B., Lux, T., , (2009). Mathematics, Methods, and Modern Economics. real-world economics review, 50, 118-121.
- Colander, D., Föllmer, H., Haas, A., Goldberg, M., Juselius, K., Kirman, A., Lux, T., Sloth, B. (2009). The Financial Crisis and the Systemic Failure of Academic Economics. Kiel Working Paper, 1489, Institut für Weltwirtschaft, Kiel, 17 pp.
- Colander, D., Föllmer, H., Haas, A., Goldberg, M., Juselius, K., Kirman, A., Lux, T., Sloth, B. (2009). The Financial Crisis and the Systemic Failure of Academic Economics . Critical Review, 21 (2-3), 249-267.
- Cox, J., Sadiraj, V., Schmidt, U. (2011). Paradoxes and Mechanisms for Choice under Risk. Kiel Working Paper, 1712, Institut für Weltwirtschaft, Kiel, 44 pp.
- de Graeve, F., Kick, T., Koetter, M. (2008). Monetary policy and financial (in)stability: An integrated micro–macro approach. JOURNAL OF FINANCIAL STABILITY, 4, Elsevier, 165-304.
- Dovern, J., Meier, C., Vilsmeier, J. (2008). How Resilient is the German Banking System to Macroeconomic Shocks?. Kiel Working Papers, 1419, Kiel Institute for the World Economy, 21 pp.
- Faggini, M., Lux, T. (2008). Coping with the Complexity of Economics.. Springer, Berlin.
- Farmer, J., Lux, T. (2008). Introduction to special issue on "Applications of Statistical Physics in Economics and Finance". Journal of Economic Dynamics and Control, 32 (1), 1-6.
- Fricke, D. (2010). Contagion Between European and US Banks: Evidence from Equity Prices. Kiel Working Paper, 1667, Institut für Weltwirtschaft, Kiel, 65 pp.
- Gallegati, M., Keen, S., Lux, T., Ormerod, P. (2006). Worrying Trends in Econophysics. Physica A, 370, 1-6.
- Ghonghadze, J., Lux, T. (Forthcoming). Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach . Applied Economics
- Herwartz, H., Morales, L. An Empirical Analysis of the Relationship between US Monetary Policy and International Asset Prices.
- Herwartz, H., Morales-Arias, L. (2010). An Empirical Analysis of the Relationship between US Monetary Policy and International Asset Prices. Kiel Working Papers, 1581, Institut für Weltwirtschaft, Kiel, 38 pp.
- Herwartz, H., Morales-Arias, L. (2009). In-Sample and Out-of-Sample Properties of International Stock Return Dynamics Conditional on Equilibrium Pricing Factors. European Journal of Finance, 15 (1), 1-28.
- Hey, J., Morone, A., Schmidt, U. (2009). Noise and Bias in Eliciting Preferences. Journal of Risk and Uncertainty, 39 (3), 213-235.
- Hommes, C., Lux, T. (Forthcoming). Individual Expectations and Aggregate Behavior in Learning to Forecast Experiments . Macroeconomic Dynamics
- Irle, A., Kauschke, J., Lux, T., Milakovic, M. (2010). Switching Rates and the Asymptotic Behavior of Herding Models. Kiel Working Papers, 1595, Institut für Weltwirtschaft, Kiel, 16 pp.
- Irle, A., Kauschke, J., Lux, T., Milaković, M. (2011). Switching Rates and the Asymptotic Behavior of Herding Models. Advances in Complex Systems, 14 (3), 359-376.
- Kenett, D., Raddant, M., Lux, T., Ben-Jacob, E. (2011). Evolvement of uniformity and volatility in the stressed global financial village. Kiel Working Paper, 1739, Institut für Weltwirtschaft, Kiel, 27 pp.
- Kenett, D., Raddant, M., Lux, T., Ben-Jacob, E. (2012). Evolvement of Uniformity and Volatility in the Stressed Global Financial Village. PLoS ONE , 7(2), 8 pp.
- Kick, T., Koetter, M. (2007). Slippery Slopes of Stress: Ordered Failure Events in German Banking. Journal of Financial Stability, 3(2), 132-148.
- Koetter, M., Porath, D. (2006). Efficient, profitable and safe banking: an oxymoron? evidence from a panel VAR approach. Discussion Paper Series 2, Banking and financial studies, Deutsche Bundesbank, Frankfurt
- Leövey, A., Lux, T. (2011). Parameter Estimation and Forecasting for Multiplicative Lognormal Cascades. Kiel Working Paper, 1746, Institut für Weltwirtschaft, Kiel, 30 pp.
- Liu, R., Lux, T. (2010). Flexible and Robust Modelling of Volatility Comovements: A Comparison of Two Multifractal Models. Kiel Working Papers, 1594, Institut für Weltwirtschaft, 32 pp.
- Liu, R., Di Matteo, T., Lux, T. (2008). Multifractality and Long-Range Dependence of Asset Returns: The Scaling Behaviour of the Markov-Switching Multifractal Model with Lognormal Volatility Components. Kiel Working Papers, 1427, Kiel Institute for the World Economy , Kiel, 15 pp.
- Liu, R., Di Matteo, T., Lux, T. (2008). Multifractality and Long-Range Dependence of Asset Returns: The Scaling Behaviour of the Markov-Switching Multifractal Model with Lognormal Volatility Components . Advances in Complex Systems, 11(5), 669-685.
- Lohse, T., Robledo, J., Schmidt, U. (2010). Self-Insurance and Self-Protection as Public Goods. Kiel Working Paper, 1613, Institut für Weltwirtschaft, Kiel, 28 S.
- Lohse, T., Robledo, J., Schmidt, U. (Forthcoming). Self-Insurance and Self-Protection as Public Goods. Journal of Risk and Insurance
- Lux, T., Morales-Arias, L., Sattarhoff, C. (2011). A Markov-switching Multifractal Approach to Forecasting Realized Volatility. Kiel Working Paper, 1737, Institut für Weltwirtschaft, Kiel, 48 pp.
- Lux, T., (2008). Applications of Statistical Physics in Finance and Economics. Kiel Working Papers, 1425, Kiel Institute for the World Economy , Kiel, 69 pp.
- Lux, T., (2009). Applications of Statistical Physics in Finance and Economics. Handbook of Research on Complexity, 213-258.
- Lux, T., Westerhoff, F. (2009). Economics Crisis. Nature Physics, 5, 2-3.
- Lux, T., (Forthcoming). Estimation of an Agent-Based Model of Investor Sentiment Formation in Financial Markets. Journal of Economic Dynamics and Control
- Lux, T., Morales-Arias, L. (2009). Forecasting Volatility under Fractality, Regime-Switching, Long Memory and Student-t Innovations. Kiel Working Paper, 1532, Kiel Institute for the World Economy, Kiel, 35 pp.
- Lux, T., Morales-Arias, L. (2010). Forecasting Volatility under Fractality, Regime-Switching, Long Memory and Student-t Innovations. Computational Statistics & Data Analysis, 54 (11), 2676-2692.
- Lux, T., Stolzenburg, U. (Forthcoming). Identification of a Core-Periphery Structure Among Participants of a Business Climate Survey . European Physical Journal
- Lux, T., (2009). Mass Psychology in Action: Identification of Social Interaction Effects in the German Stock Market. Kiel Working Paper, 1514, Institut für Weltwirtschaft, Kiel, 42 pp.
- Lux, T., (2011). Network theory is sorely required. Nature, 469, 303.
- Lux, T., (2008). Rational Forecasts or Social Opinion Dynamics? Identification of Interaction Effects in a Business Climate Survey. Kiel Working Papers, 1424, Kiel Institute for the World Economy , Kiel, 40 pp.
- Lux, T., (2009). Rational Forecasts or Social Opinion Dynamics? Identification of Interaction Effects in a Business Climate Survey. Journal of Economic Behavior and Organization, 72 (2), 638-655.
- Lux, T., Morales-Arias, L. (2010). Relative Forecasting Performance of Volatility Models: Monte Carlo Evidence. Kiel Working Papers, 1582, Institut für Weltwirtschaft, Kiel, 35 pp.
- Lux, T., (2008). Sentiment Dynamics and Stock Returns: The Case of the German Stock Market. Kiel Working Paper, 1470, Kiel Institute for the World Economy, Kiel, 28 pp.
- Lux, T., (2011). Sentiment Dynamics and Stock Returns: The Case of the German Stock Market . Empirical Economics, 41, 663-679.
- Lux, T., Raberto, M. (Forthcoming). Special issue: Managing Financial Instability in Capitalist Economies. Economics, The Open-Access, Open-Assessment E-Journal
- Lux, T., (2009). Stochastic Behavioral Asset Pricing Models and the Stylized Facts. Handbook on Financial Markets, 161-215.
- Lux, T., (2008). Stochastic Behavioral Asset Pricing Models and the Stylized Facts. Kiel Working Papers, 1426, Kiel Institute for the World Economy , Kiel, 79 pp.
- Lux, T., (2008). The Markov-Switching Multifractal Model of Asset Returns: Estimation via GMM and Linear Forecasting of Volatility. Journal of Business and Economic Statistics, 26 (2), 194-210.
- Maschke, M., Schmidt, U. (2011). Das Wettmonopol in Deutschland: Status Quo und Reformansätze. Zeitschrift für Wirtschaftspolitik, 60(1): 110-123
- Menkhoff, L., Schmeling, M., Schmidt, U. (2010). Are All Professional Investors Sophisticated?. German Economic Review, 11 (4), 418-440.
- Menkhoff, L., Schmeling, M., Schmidt, U. (2010). Overconfidence, Experience, and Professionalism: An Experimental Study. Kiel Working Papers, 1612, Institut für Weltwirtschaft, Kiel, 17 pp.
- Michailova, J., Schmidt, U. (2011). Overconfidence and Bubbles in Experimental Asset Markets. Kiel Working Paper, 1729, Institut für Weltwirtschaft, Kiel, 35 pp.
- Milakovic, M., Raddant, M., Birg, L. (2010). Hierarchy in Germany's Corporate Network. International Conference on Advances in Social Networks Analysis and Mining, Asonam, IEEE, 395-396 pp.
- Milakovic, M., Alfarano, S., Lux, T. (2008). The Small Core of the German Corporate Board Network. Kiel Working Paper, 1446, Institut für Weltwirtschaft, Kiel, 19 pp.
- Milakovic, M., Alfarano, S., Lux, T. (2010). The Small Core of the German Corporate Board Network. Computational & Mathematical Organization Theory, 16, 201-215.
- Morales-Arias, L., Moura, G. (2010). A Conditionally Heteroskedastic Global Inflation Model. Kiel Working Paper, 1666, Institut für Weltwirtschaft, Kiel, 38 pp.
- Morales-Arias, L., Dross, A. (2010). Adaptive Forecasting of Exchange Rates with Panel Data. Kiel Working Paper, 1656, Institut für Weltwirtschaft, Kiel, 48 pp.
- Prelle, C., Irle, A. (2008). A Note on Arbitrage under Transaction Costs. Kiel Working Paper, 1450, Kiel Institute for the World Economy, Kiel, 7 pp.
- Prelle, C., Irle, A. (2008). A renewal theoretic result in portfolio theory under transaction costs with multiple risky assets. Kiel Working Paper, 1449, Kiel Institute for the World Economy, Kiel, 28 pp.
- Reitz, S., Rülke, J., Stadtmann, G. Nonlinear Expectations in Speculative Markets - Evidence from the ECB Survey of Professional Forecasters.
- Reitz, S., Rülke, J., Stadtmann, G. (2011). Nonlinear Expectations in Speculative Markets - Evidence from the ECB Survey of Professional Forecasters. Kiel Working Paper, 1706, Institut für Weltwirtschaft, Kiel, 39 pp.
- Reitz, S., Rülke, J., Taylor, M. (Forthcoming). On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates. The Economic Record
- Roos, M., Schmidt, U. (2011). The importance of time series extrapolation for macroeconomic expectations. Kiel Working Paper, 1723, Kiel Institute for the World Economy, Kiel, 25 pp.
- Roos, M., Schmidt, U. (Forthcoming). The importance of time series extrapolation for macroeconomic expectations. German Economic Review
- Schmidt, U. (2010). Asymmetrically Dominated Alternatives and Random Incentive Mechanisms. Kiel Working Paper, 1646, Kiel Institute for the World Economy, Kiel, 5 pp.
- Schmidt, U., Zank, H. (2010). Endogenizing Prospect Theory's Reference Point. Kiel Working Papers, 1611, Institut für Weltwirtschaft, Kiel, 16 pp.
- Schmidt, U., Zank, H. Endogenizing Prospekct Theory's Reference Point.
- Schmidt, U., Zimper, A. (2011). Explaining the harmonic sequence paradox. Kiel Working Paper, 1724, Kiel Institute for the World Economy, Kiel, 18 pp.
- Schmidt, U., Zimper, A. (Forthcoming). Explaining the harmonic sequence paradox. British Journal of Mathematical and Statistical Psychology
- Schmidt, U. (2012). Insurance Demand and Prospect Theory. Kiel Working Paper, 1750, Kiel Institute for the World Economy, Kiel, 6 pp.
- Schmidt, U., Trautmann, S. (2010). Common Consequence Effects with Pricing Data. Kiel Working Papers, 1610, Institut für Weltwirtschaft, Kiel, 6 pp.
- Schmidt, U., Starmer, C., Sudgen, R. (2008). Third-Generation Prospect Theory. Journal of Risk and Uncertainty, 36(3), 202-223.
- Trautmann, S., Schmidt, U. (2011). Pricing risk and ambiguity: The effect of perspective taking. Kiel Working Paper, 1727, Kiel Institute for the World Economy, Kiel, 14 pp.
- Trautmann, S., Schmidt, U. (Forthcoming). Pricing risk and ambiguity: The effect of perspective taking. Quarterly Journal of Experimental Psychology