Monetary models of exchange rates and the random walk

Three alternative monetary models of exchange rate are tested using data on the Italian lira - US doIIar exchange rate. II is shown that up to the early 1990s these economic models perform better than the random walk model in out-of-sample forecasts.

Are OECD stock prices characterized by a random walk? Evidence from sequential trend break and panel data models

This paper examines whether stock prices for a sample of 22 OECD countries can be best represented as mean reversion or random walk processes. A sequential trend break test proposed by Zivot and Andrews is implemented, which has the advantage that it can take account of a structural break in the series, as well as panel data unit root tests proposed by Im et al., which exploits the extra power in the panel properties of the data. Results provide strong support for the random walk hypothesis.

Random walk versus multiple trend breaks in stock prices : evidence from 15 European markets

This letter extends research reported in Narayan and Smyth (2005) by employing multiple trend break unit root tests to examine the random walk hypothesis for 15 European stock market indices. The results provide strong support for the view that stock prices are characterized by a random walk.

Mean reversion versus random walk in G7 stock prices evidence from multiple trend break unit root tests

This paper provides evidence on the random walk hypothesis in G7 stock price indices using unit root tests which allow for one and two structural breaks in the trend. Of the seven countries we find, at best, evidence of mean reversion in the stock price index of Japan. Thus, overall, our results support the random walk hypothesis. We also consider the implications of the identified structural breaks for movement in stock prices over time. Our main conclusion from this exercise is that the second break in stock prices has had a detrimental effect on movements in stock prices in the G7 countries.

Testing for a random walk in Italy's inflation in the post-war period, 1947-1996

This paper investigates the unit root properties of Italy’s inflation rate in the post-war period (1947-1996). To achieve the aim of this study, the Zivot and Andrews (1992) one break test and the Lumsdaine and Papell (1997) two breaks test for unit roots are applied. It is found that inflation for Italy was a non-stationary breakpoint for the period 1947-1996. This result has important implications for econometric modeling and in understanding the behavior of shocks to Italy’s inflation.

Testing for the random walk hypothesis in the case of visitor arrivals : evidence from Indian tourism

Testing for the random walk hypothesis, which asserts that a series is a non-stationary process or a unit root process, in the case of visitor arrivals has important implications for policy. If, for instance, visitor arrivals are characterized by a unit root, then it implies that shocks to visitor arrivals are permanent. However, if visitor arrivals are without a unit root, this implies that shocks to visitor arrivals are temporary. This study provides evidence on the random walk hypothesis for visitor arrivals to India using the recently developed Im et al. (2003) and Maddala and Wu (1999) panel unit root tests. Both tests allow one to reject the random walk hypothesis, implying that shocks to visitor arrivals to India from the 10 major source markets have a temporary effect on visitor arrivals.

Detection on application layer DDoS using random walk model

Application Layer Distributed Denial of Service (ALDDoS) attacks have been increasing rapidly with the growth of Botnets and Ubiquitous computing. Differentiate to the former DDoS attacks, ALDDoS attacks cannot be efficiently detected, as attackers always adopt legitimate requests with real IP address, and the traffic has high similarity to legitimate traffic. In spite of that, we think, the attackers' browsing behavior will have great disparity from that of the legitimate users'. In this paper, we put forward a novel user behavior-based method to detect the application layer asymmetric DDoS attack. We introduce an extended random walk model to describe user browsing behavior and establish the legitimate pattern of browsing sequences. For each incoming browser, we observe his page request sequence and predict subsequent page request sequence based on random walk model. The similarity between the predicted and the observed page request sequence is used as a criterion to measure the legality of the user, and then attacker would be detected based on it. Evaluation results based on real collected data set has demonstrated that our method is very effective in detecting asymmetric ALDDoS attacks. © 2014 IEEE.

The exchange rate disconnect puzzle: a resolution?

Early empirical studies of exchange rate determinants demonstrated that fundamentals-based monetary models were unable to outperform the benchmark random walk model in out-of-sample forecasts while later papers found evidence in favor of long-run exchange rate predictability. More recent theoretical works have adopted a microeconomic structure; a utility-based new open economy macroeconomic framework and a rational expectations present value model. Some recent empirical work argues that if the models are adjusted for parameter instability, it is a good predictor of nominal exchange rates while others use aggregate idiosyncratic volatility to generate good predictions. This latest research supports the idea that fundamental economic variables are likely to influence exchange rates especially in the long run and further that the emphasis should change to the economic value or utility based value to assess these macroeconomic models.

Concepts and dimensionality in modeling unsaturated water flow and solute transport

Many environmental studies require accurate simulation of water and solute fluxes in the unsaturated zone. This paper evaluates one- and multi-dimensional approaches for soil water flow as well as different spreading mechanisms to model solute behavior at different scales. For quantification of soil water fluxes,Richards equation has become the standard. Although current numerical codes show perfect water balances, the calculated soil water fluxes in case of head boundary conditions may depend largely on the method used for spatial averaging of the hydraulic conductivity. Atmospheric boundary conditions, especially in the case of phreatic groundwater levels fluctuating above and below a soil surface, require sophisticated solutions to ensure convergence. Concepts for flow in soils with macro pores and unstable wetting fronts are still in development. One-dimensional flow models are formulated to work with lumped parameters in order to account for the soil heterogeneity and preferential flow. They can be used at temporal and spatial scales that are of interest to water managers and policymakers. Multi-dimensional flow models are hampered by data and computation requirements.Their main strength is detailed analysis of typical multi-dimensional flow problems, including soil heterogeneity and preferential flow. Three physically based solute-transport concepts have been proposed to describe solute spreading during unsaturated flow: The stochastic-convective model (SCM), the convection-dispersion equation (CDE), and the fraction aladvection-dispersion equation (FADE). A less physical concept is the continuous-time random-walk process (CTRW). Of these, the SCM and the CDE are well established, and their strengths and weaknesses are identified. The FADE and the CTRW are more recent,and only a tentative strength weakness opportunity threat (SWOT)analysis can be presented at this time. We discuss the effect of the number of dimensions in a numerical model and the spacing between model nodes on solute spreading and the values of the solute-spreading parameters. In order to meet the increasing complexity of environmental problems, two approaches of model combination are used: Model integration and model coupling. Amain drawback of model integration is the complexity of there sulting code. Model coupling requires a systematic physical domain and model communication analysis. The setup and maintenance of a hydrologic framework for model coupling requires substantial resources, but on the other hand, contributions can be made by many research groups.

Investigating Facebook groups through a random graph model

Facebook disseminates messages for billions of users everyday. Though there are log files stored on central servers, law enforcement agencies outside of the U.S. cannot easily acquire server log files from Facebook. This work models Facebook user groups by using a random graph model. Our aim is to facilitate detectives quickly estimating the size of a Facebook group with which a suspect is involved. We estimate this group size according to the number of immediate friends and the number of extended friends which are usually accessible by the public. We plot and examine UML diagrams to describe Facebook functions. Our experimental results show that asymmetric Facebook friendship fulfills the assumption of applying random graph models.

Stabilized sparse ordinal regression for medical risk stratification

The recent wide adoption of electronic medical records (EMRs) presents great opportunities and challenges for data mining. The EMR data are largely temporal, often noisy, irregular and high dimensional. This paper constructs a novel ordinal regression framework for predicting medical risk stratification from EMR. First, a conceptual view of EMR as a temporal image is constructed to extract a diverse set of features. Second, ordinal modeling is applied for predicting cumulative or progressive risk. The challenges are building a transparent predictive model that works with a large number of weakly predictive features, and at the same time, is stable against resampling variations. Our solution employs sparsity methods that are stabilized through domain-specific feature interaction networks. We introduces two indices that measure the model stability against data resampling. Feature networks are used to generate two multivariate Gaussian priors with sparse precision matrices (the Laplacian and Random Walk). We apply the framework on a large short-term suicide risk prediction problem and demonstrate that our methods outperform clinicians to a large margin, discover suicide risk factors that conform with mental health knowledge, and produce models with enhanced stability. © 2014 Springer-Verlag London.

A graph-based model for context-aware recommendation using implicit feedback data

Recommender systems have been successfully dealing with the problem of information overload. However, most recommendation methods suit to the scenarios where explicit feedback, e.g. ratings, are available, but might not be suitable for the most common scenarios with only implicit feedback. In addition, most existing methods only focus on user and item dimensions and neglect any additional contextual information, such as time and location. In this paper, we propose a graph-based generic recommendation framework, which constructs a Multi-Layer Context Graph (MLCG) from implicit feedback data, and then performs ranking algorithms in MLCG for context-aware recommendation. Specifically, MLCG incorporates a variety of contextual information into a recommendation process and models the interactions between users and items. Moreover, based on MLCG, two novel ranking methods are developed: Context-aware Personalized Random Walk (CPRW) captures user preferences and current situations, and Semantic Path-based Random Walk (SPRW) incorporates semantics of paths in MLCG into random walk model for recommendation. The experiments on two real-world datasets demonstrate the effectiveness of our approach.

PhysarumSpreader: a new bio-Inspired methodology for identifying influential spreaders in complex networks

Identifying influential spreaders in networks, which contributes to optimizing the use of available resources and efficient spreading of information, is of great theoretical significance and practical value. A random-walk-based algorithm LeaderRank has been shown as an effective and efficient method in recognizing leaders in social network, which even outperforms the well-known PageRank method. As LeaderRank is initially developed for binary directed networks, further extensions should be studied in weighted networks. In this paper, a generalized algorithm PhysarumSpreader is proposed by combining LeaderRank with a positive feedback mechanism inspired from an amoeboid organism called Physarum Polycephalum. By taking edge weights into consideration and adding the positive feedback mechanism, PhysarumSpreader is applicable in both directed and undirected networks with weights. By taking two real networks for examples, the effectiveness of the proposed method is demonstrated by comparing with other standard centrality measures.

Scaling relationships of Gaussian processes

Asset returns conforming to a Gaussian random walk are characterised by the temporal independence of the moments of the distribution. Employing currency returns, this note demonstrates the conditions that are necessary for risk to be estimated in this manner.