Idiosyncratic Price Research Articles

Data-driven prosumer-centric energy scheduling using convolutional neural networks

The emerging role of energy prosumers (both producers and consumers) enables a more flexible and localised structure of energy markets. However, it leads to challenges for the energy scheduling of individual prosumers in terms of identifying idiosyncratic pricing patterns, cost-effectively predicting power profiles, and scheduling various scales of generation and consumption sources. To overcome these three challenges, this study proposes a novel data-driven energy scheduling model for an individual prosumer. The pricing patterns of a prosumer are represented by three types of dynamic price elasticities, i.e., the price elasticities of the generation, consumption, and carbon emissions. To improve the computational efficiency and scalability, the heuristic algorithms used to solve the optimisation problems is replaced by the convolutional neural networks which map the pricing patterns to scheduling decisions of a prosumer. The variations of uncertainties caused by the intermittency of renewable energy sources, flexible demand, and dynamic prices are predicted by the developed real-time scenarios selection approach, in which each variation is defined as a scenario. Case studies under various IEEE test distribution systems and uncertain scenarios demonstrate the effectiveness of our proposed energy scheduling model in terms of predicting scheduling decisions in microseconds with high accuracy.

Who Benefitted From the PyeongChang Olympic Announcement? Evidence From the South Korean Stock Market

Understanding the market effects of Olympic host announcements is popular in academic research. Contrary to prior studies, announcing PyeongChang as the 2018 host had a positive effect on South Korea's Stock Market, with conservative estimates suggesting a peak of +3.8% during the 15 trading days post announcement (an increase equivalent to $34.962 billion). The degree to which firms benefitted varied by industry and lifecycle stage. Older and lower-growth financial and information technology firms saw larger abnormal returns compared to other firms. These findings suggest that academics and investors pay greater attention to idiosyncratic price adjustments to systematic market shocks.

Regime Switching in High-Tech ETFs: Idiosyncratic Volatility and Return

The volatility of asset returns can be classified into market and firm-specific volatility, otherwise known as idiosyncratic volatility. Idiosyncratic volatility is increasing over time with some literature attributing this to the IT revolution. An understanding of the relationship between idiosyncratic risk and return is indeed relevant for idiosyncratic risk pricing and asset allocation, in a context of emerging technologies. The case of high-tech exchange traded funds (ETFs) is especially interesting, since ETFs introduce new noise to the market due to arbitrage activities and high frequency trading. This article examines the relevance of idiosyncratic risk in explaining the return of nine high-tech ETFs. The Markov regime-switching (MRS) methodology for heteroscedastic regimes has been applied. We found that high-tech ETF returns are negatively related to idiosyncratic risk during the high volatility regime and positively related to idiosyncratic risk during the low volatility regime. These results suggest that idiosyncratic volatility matters in high-tech ETF pricing, and that the effects are driven by volatility regimes, leading to changes across them.

ESG features explain one bit of idiosyncratic price returns

ESG features explain one bit of idiosyncratic price returns

Information Type and the Geography of Price Discovery

Local (Sao Paulo) and global (New York) markets contribute significantly to price discovery in dual-listed Brazilian shares, but their contribution varies over time. Local information shares increase by 8.4% on days when a stock experiences a significant idiosyncratic price swing, but do not similarly increase on earnings announcement days or on days when the whole local market experiences a significant price swing, despite an equally large increase in trading. Traders in the local market seem to have an advantage in collecting and processing company-specific unscheduled information, but not widely disseminated scheduled information which affects the company or the whole market.

On Multi-Dimensional Time-Varying Price Staleness

The price staleness is referred to as the extent of the presence of the zero returns in the price dynamics. The proportion of the zero returns could be high in the high-frequency data sets, as pointed by Bandi et al. (2020a). Considering the price staleness as a dynamic system too, in this paper, we extend the framework of Bandi et al. (2020b) and study the statistical inference of the idiosyncratic price staleness and systematic price staleness between assets, where the systematic price staleness characterizes the probability of the presence of com- mon zero returns. We propose consistent estimators for both the idiosyncratic and systematic price stalenesses under the new framework, and their distributional theory are established. Moreover, we develop a feasible nonparametric test for the constancy of the systematic price staleness. All of the methodologies are based on the high-frequency observations, namely, we require the observing intervals shrink to zero. Finally, we conduct simulation studies under various scenarios to assess the finite sample performance of the proposed approaches, and provide an empirical illustration for the proposed theory.

Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 options market

We provide first-time evidence of the real-time characteristics and drivers of jumps in option prices. To this end, we employ high-frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. We also find that 14%–28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives these jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public news releases. Interestingly, illiquidity does not drive jumps in the S&P 500 index options market, where we also find sizable and idiosyncratic price jumps.

The decline in idiosyncratic values of US Treasury securities

Abstract Unique features and market frictions can lead to idiosyncratic pricing for some US Treasury securities. This study uses a linear programming (LP) model to measure aggregate idiosyncratic pricing of T-notes and T-bonds from 1980 to 2016. We document an average idiosyncratic pricing of $0.11 per $100 par, as compared to an average bid-ask spread of $0.08. Further, idiosyncratic pricing declined dramatically from the early 1980s to the 2010s. Empirical evidence suggests that the 1986 Tax Reform Act, increasing issue sizes and improving market liquidity contribute to the decline. At the individual security level, we identify factors contributing to and mitigating idiosyncratic pricing.

Overconfidence, subjective perception and pricing behavior

We study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information. Our price-setters overestimate their abilities to infer aggregate shocks from private signals. The fraction of uninformed firms is endogenous; firms can obtain information by paying a fixed cost. We find two results: i) overconfident firms are less inclined to acquire information relative to the rational benchmark; ii) prices might exhibit excess volatility driven by non-fundamental noise. We explore the empirical predictions of our model for idiosyncratic price volatility.

Search Frictions and Idiosyncratic Price Dispersion in the US Housing Market

This paper studies idiosyncratic price dispersion in the US housing market. We develop a new strategy to measure dispersion at the level of individual house sales. We show that idiosyncratic price dispersion is countercyclical and seasonal, and is associated with various measures of market tightness. We construct a search-and-bargaining model of the housing market, and show that the relationship between seller time-on-market and price dispersion can be used to separately identify dispersion driven by seller and buyer preferences. We calibrate the model to data to quantify the magnitude of market frictions and their effects on the welfare of market participants.

Thai inflation dynamics: A view from disaggregated price data

This paper utilizes disaggregated prices at the micro level to examine the patterns of price adjustment in Thailand. Among the key stylized facts, we found that the frequency of price changes are generally low, prices decreases are common, the size of price changes are large relative to the inflation rate, and there is significant dispersion in price levels as well as in the synchronicity of price changes across regions. To better understand the underlying sources of heterogeneous price dynamics, we conduct dynamic factor analyses and highlight the importance of relative price changes in driving the bulk of overall CPI movements. This suggests an important role of non-monetary factors in driving inflation. A significant Phillips curve relation is detected once idiosyncratic price changes are filtered out, reinforcing the importance of disaggregated analysis of price trends in the conduct of monetary policy.

Reducing residential mortgage default: Should policy act before or after home purchases?

We examine two possible approaches to reducing residential mortgage default using a dynamic model of heterogeneous infinitely-lived agents acting optimally subject to uninsurable idiosyncratic earnings shocks and systemic house price shocks. We find higher down payments are very effective in minimizing residential mortgage foreclosures, even in periods of house price declines and recessions. In contrast, the length of the credit exclusionary period for people who experience bankruptcy or foreclosure has a much smaller impact on mortgage defaults. Thus, it is much more effective to prevent mortgage default before the mortgage closes than to pressure homeowners not to default once they are in financial trouble. This also suggests a major aspect of credit scores and credit policy is non-productive and punitive, harming people in return for little societal gain.

Testing for Co-jumps in Financial Markets

In this paper, we introduce the notion of co-jumps within the co-features framework. We formulate a limiting theory of co-jumps and discuss their discrete sample properties. In the presence of idiosyncratic price jumps, we identify the notion of weak co-jumps. We illustrate the empirical relevance of the proposed framework via an empirical application using the components of the Dow Jones Industrial Average 30 index running from 1 January 2010 to 30 June 2012, sampled at a five-min frequency.

The Effect of Customer Concentration on CEO Risk-Taking Incentives

This paper examines the effect of customer base concentration (“CC”), which captures the extent to which sales to major customers account for a supplier’s total annual revenue, on the supplying firm’s CEO risk-taking equity incentives. Existing literature predominantly uses total annual revenue as a proxy for firm size or managerial decision difficulty without examining from whom the revenue is earned. My paper improves this design by decomposing total annual revenue into revenue from major customers and revenue from the rest based on the CC concept posited by Patatoukas (2012). As prior literature shows CC risk to be idiosyncratic (Dhaliwal et al., 2013) and modern risk-based asset pricing theories posit that idiosyncratic return volatility is not priced amongst the risk-neutral investors, CC risk is diversifiable at the shareholder level – hence, only the performance-related net-benefits (Patatoukas, 2012) of engaging in contractual relationships with a few major customers should determine the desirability of high CC for the risk-neutral investors. However, in the midst of deficient accommodation, a risk-averse, undiversified manager may exhibit risk-aversion towards the state of high CC. Thus, I expect the BOD to recognize this potential agency problem and provide more risk-taking incentives for a CEO who manages a highly concentrated customer base. Upon empirical investigation, I document that CC exerts a positive influence over the supplier’s CEO vega incentives, whereby the CEO is compensated for assuming additional CC risk as her equity wealth becomes an increasing function of the firm’s stock return volatility. Furthermore, I show that less risk-taking incentives are expected when the degree of product substitution difficulty is high or the supplier’s trade credit levels are low, illustrating that the predictability of CC over CEO equity incentives varies with the settings in which the suppliers and customers interact.

Borrowing constraints and housing market liquidity

We study how changes in household borrowing constraints influence housing market liquidity. To this end, we develop a housing market model with both matching and credit frictions. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. In the model, housing market liquidity is very sensitive to changes in household credit conditions. In particular, a moderate tightening of household borrowing constraints increases the average time-on-the-market and idiosyncratic price dispersion substantially.

Idiosyncratic Volatility and Stock Prices

The purpose of the research is to investigate the Accrual Principles in Accounting that contained in the Company's Financial Statements. The accrual principle is reflected in the Balance Sheet and Income Statement. Accrual measurements in the Balance Sheet are measured using Persistence Current Non-Current Operating Accrual, Persistence Non-Current Operating Accrual, Accrual measured as idiosyncratic risk and stock price. The idiosyncratic risk reflects the specific information about the company and it will fluctuate according to the information itself. To measure the idiosyncratic risk in this study 3 factors of Fama-French Model were used (Fama & French, 1996)). The three-factor model Fama French is performed by conducting a stock return of a portfolio of the sample companies and regressing the excess returns using three factors. Asset Pricing Measurement uses the Dividend Discounted Model to predict stock prices. The samples used in this study are listed below. The Manufacturing Company is selected with consideration for accrual measurement of accounts receivable, inventory, investment and liabilities. The sample was chosen by purposive random sampling method. The number of samples generated by this method is 154 companies with full reports for 2010-2015. Using the SEM AMOS Ver.24 and Sobel Test Path Analysis, the results show that Current Operating Accrual has a negative and significant relationship to the idiosyncratic risk and stock price. For non-Current Operating Accrual variables have positive and significant relation. By using Sobel Test, the test result shows that idiosyncratic risk has mediation effect in Persistence Current Operating Accrual, Non-Current Operating Accrual relationship to stock price.

Actively Learning by Pricing: A Model of an Experimenting Seller

This article presents a model of a rational seller who is actively learning the slope of his demand curve via his pricing strategy. Consequently, this seller optimally experiments with his price. Resulting price patterns show a tendency for discreteness (as observed in the data), which has proved to be a major challenge to most price setting models. The experimentation motive can also replicate the observation that prices are more volatile than costs, as well as the presence of many idiosyncratic price changes in the data. It can do so without a need to assume the existence of large idiosyncratic shocks.

The effect of idiosyncratic price movements on short- and long-run performance of hotels

It is a common belief that businesses performance should not be evaluated by immediate fiscal returns, but rather based on an extended time horizon. While the literature implies that pricing decisions may exert lagged as well as contemporaneous effects on performance, a limited number of empirical studies have focused on such effects. The current study investigates effects of idiosyncratic price movements on short-run and long-run hotel performance, where idiosyncratic price movements refer to the changes in individual hotels’ room rates unexplained by price competition, product differentiation, and market conditions. By analyzing spatial panel data from the Houston lodging market between 2005 and 2014, we find that idiosyncratic price movements enhance hotel performance in the short-run and that adverse effects followed in the long-run. Findings of the study and implications for practitioners are discussed along with suggestions for future research.

Further evidence on idiosyncratic risk and REIT pricing: a cross-country analysis

PurposeThe purpose of this study is to provide new cross-country evidence on the relation between real estate investment trust (REIT) returns and idiosyncratic risk for samples of listed and unlisted REITs in the US and Australia.Design/methodology/approachFive alternative models with exponential GARCH enhancements were employed, in a Fama-MacBeth (1973) setup. The authors assess the statistical significance of the idiosyncratic risk variable and interpret the outcomes.FindingsThe results show that listed REITs in the US and Australia demonstrate a positive idiosyncratic risk-return linkage over the long period of January 1980-November 2013 and April 1994-December 2012, respectively. A further examination by sub-period reveals that this positive relation is only evident in the new REIT era (January 1993-September 2001), absent in the vintage era (before December 1992) and maturity era (November 2001-August 2008). The unlisted REITs in both countries show no relation with idiosyncratic risk. Further, the global financial crisis has no effect on the relation between idiosyncratic risk and REIT returns.Originality/valueA key motivation of this paper stems from the mixed findings documented in the literature. Also very little research has been done on the idiosyncratic risk-REIT returns linkage in the Australian context. This study offers unique insights from comparisons: Australia vs the US; and listed vs unlisted REITs.

Redefining and Constructing Basic Term Structures of Interest Rates and Analyzing Price Errors of Indonesian Government Bonds and the US Treasuries

Some researchers blame market liquidity for idiosyncratic price biases. Varying liquidities bias not only bond prices, but also term structure of interest rates and other asset valuations. To hinder volatile term structure, we need to realize basic yields which had been a concept since 1942 to produce stable reference of term structures. We have reviewed the basic yields from the current risk management concept and redefine the basic term structure as a liquidity-risk-premium-free term structure. To construct the basic term structure, a new methodology based on statistical modes of liquidity measures is available to calculate basic bond prices. We provide some liquidity measures, such as: bid-ask spread, quotation frequency and time-to-maturity. Since many previous literatures considered transaction frequency was not a significant measure, we split the measure into positive-return and negative-return quotation frequencies. Contrary to the previous literatures, our regression shows that the quotation frequency is a significant measure. The estimation have successfully implemented the methodology to estimate the data of on-the-run Indonesian domestic government and the US Treasuries' bonds from April 2013 to October 2013 to represent developing and developed markets. Using composite or nominal bootstrap estimation, we find out that between-maturity and between-day prices contain the mixtures of homoscedastic and heteroscedastic errors. The estimation has changed between-maturity price error becoming more homoscedastic. However, between-day price error stays heteroscedastic which it may come from country and inflation risk premiums.