Modeling Stock Order Flows and Learning Market-Making from Data

Stock markets employ specialized traders, market-makers, designed to provide liquidity and volume to the market by constantly supplying both supply and demand. In this paper, we demonstrate a novel method for modeling the market as a dynamic system and a reinforcement learning algorithm that learns profitable market-making strategies when run on this model. The sequence of buys and sells for a particular stock, the order flow, we model as an Input-Output Hidden Markov Model fit to historical data. When combined with the dynamics of the order book, this creates a highly non-linear and difficult dynamic system. Our reinforcement learning algorithm, based on likelihood ratios, is run on this partially-observable environment. We demonstrate learning results for two separate real stocks.

Microstructure Order Flow: Statistical and Economic Evaluation of Nonlinear Forecasts

In this paper we propose a novel empirical extension of the standard market microstructure order flow model. The main idea is that heterogeneity of beliefs in the foreign exchange market can cause model instability and such instability has not been fully accounted for in the existing empirical literature. We investigate this issue using two di¤erent data sets and focusing on out- of-sample forecasts. Forecasting power is measured using standard statistical tests and, additionally, using an alternative approach based on measuring the economic value of forecasts after building a portfolio of assets. We nd there is a substantial economic value on conditioning on the proposed models.

Macroeconomic announcements, price discovery, and order flow efects in the stock market: evidence from incomplete data and multiple financial markets

This paper investigates heterogeneity in the market assessment of public macro- economic announcements by exploring (jointly) two main mechanisms through which macroeconomic news might enter stock prices: instantaneous fundamental news im- pacts consistent with the asset pricing view of symmetric information, and permanent order ow e¤ects consistent with a microstructure view of asymmetric information related to heterogeneous interpretation of public news. Theoretical motivation and empirical evidence for the operation of both mechanisms are presented. Signi cant in- stantaneous news impacts are detected for news related to real activity (including em- ployment), investment, in ation, and monetary policy; however, signi cant order ow e¤ects are also observed on employment announcement days. A multi-market analysis suggests that these asymmetric information e¤ects come from uncertainty about long term interest rates due to heterogeneous assessments of future Fed responses to em- ployment shocks.

Virtual-Build-to-Order as a Mass Customization Order Fulfilment Model

Virtual-build-to-order (VBTO) is a form of order fulfilment system in which the producer has the ability to search across the entire pipeline of finished stock, products in production and those in the production plan, in order to find the best product for a customer. It is a system design that is attractive to Mass Customizers, such as those in the automotive sector, whose manufacturing lead time exceeds their customers' tolerable waiting times, and for whom the holding of partly-finished stocks at a fixed decoupling point is unattractive or unworkable. This paper describes and develops the operational concepts that underpin VBTO, in particular the concepts of reconfiguration flexibility and customer aversion to waiting. Reconfiguration is the process of changing a product's specification at any point along the order fulfilment pipeline. The extent to which an order fulfilment system is flexible or inflexible reveals itself in the reconfiguration cost curve, of which there are four basic types. The operational features of the generic VBTO system are described and simulation is used to study its behaviour and performance. The concepts of reconfiguration flexibility and floating decoupling point are introduced and discussed.

Effects of changing blood viscosity and heart rate on vena contracta width as evaluated by color Doppler flow mapping. An in vitro study with a pulsatile flow model

Background: There is only limited knowledge on how the quantification of valvular regurgitation by color Doppler is affected by changing blood viscosity. This study was designed to evaluate the effect of changing blood viscosity on the vena contracta width using an in vitro model of valvular insufficiency capable of providing ample variation in the rate and stroke volume. Methods: We constructed a pulsatile flow model filled with human blood at varying hematocrit (15%, 35%, and 55%) and corresponding blood viscosity (blood/water viscosity: 2.6, 4.8, 9.1) levels in which jets were driven through a known orifice (7 mm(2)) into a 110 mL compliant receiving chamber (compliance: 2.2 mL/mmHg) by a pulsatile pump. In addition, we used variable pump stroke volumes (5, 7.5, and 10 mL) and rates (40, 60, and 80 ppm). Vena contracta region was imaged using a 3.5 MHz transducer. Pressure and volume in the flow model were kept constant during each experimental condition, as well as ultrasound settings. Results: Blood viscosity variation in the experimental range did not induce significant changes in vena contracta dimensions. Also, vena contracta width did not change from normal to low hematocrit and viscosity levels. A very modest increase only in vena contracta dimension was observed at very high level of blood viscosity when hematocrit was set to 55% . Pump rate, in the evaluated range, did not influence vena contracta width. These results in controlled experimental settings suggest that the vena contracta is an accurate quantitative method for quantifying valvular regurgitation even when this condition is associated with anemia, a frequent finding in patients with valvular heart disease.

Reconciling value estimates from the discounted cash flow model and the residual income model

This paper examines why practitioners and researchers get different estimates of equity value when they use a discounted cash flow (CF) model versus a residual income (RI) model. Both models are derived from the same underlying assumption -- that price is the present value of expected future net dividends discounted at the cost of equity capital -- but in practice and in research they frequently yield different estimates. We argue that the research literature devoted to comparing the accuracy of these two models is misguided; properly implemented, both models yield identical valuations for all firms in all years. We identify how prior research has applied inconsistent assumptions to the two models and show how these seemingly small errors cause surprisingly large differences in the value estimates. [ABSTRACT FROM AUTHOR]

An investigation of customer order flow in the foreign exchange market

This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new, and the largest, proprietary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make several contributions. Firstly, we investigate the extent to which customer order flow can help to explain exchange rate movements over and above the influence of macroeconomic variables. Secondly, we address the issue of whether order flows contain (private) information which explain exchange rates changes. Thirdly, we look at the usefulness of order flow in forecasting exchange rate movements at longer horizons than those generally considered in the microstructure literature. Finally we address the question of whether the out-of-sample exchange rate forecasts generated by order flows can be employed profitably in the foreign exchange markets

Extending the canopy flow model for natural, highly flexible macrophyte canopies

Flow structures above vegetation canopies have received much attention within terrestrial and aquatic literature. This research has led to a good process understanding of mean and turbulent canopy flow structure. However, much of this research has focused on rigid or semi-rigid vegetation with relatively simple morphology. Aquatic macrophytes differ from this form, exhibiting more complex morphologies, predominantly horizontal posture in the flow and a different force balance. While some recent studies have investigated such canopies, there is still the need to examine the relevance and applicability of general canopy layer theory to these types of vegetation. Here, we report on a range of numerical experiments, using both semi-rigid and highly flexible canopies. The results for the semi-rigid canopies support existing canopy layer theory. However, for the highly flexible vegetation, the flow pattern is much more complex and suggests that a new canopy model may be required.

Order-flow Standardization with Product Data Management Ideology

Tämän diplomityön päämääränä oli kuvata tilaus-toimitusprosessin eri toimintojen työnkulku, kun tuotetiedonhallintajärjestelmä on osa työympäristöä. Työn teoreettisessa osassa tarkasteltiin liiketoimintaprosessien uudistamista ja prosessien määrittämistä sekä esiteltiin tuotetiedonhallinnan (PDM) keskeiset osa-alueet. Kohdeyrityksen tausta ja strategiat esiteltiin, minkä jälkeen muutoksia arvioitiin suhteessa teoriaosuuden tuloksiin. Nykyisten toimintatapojen määrittämistä varten haastateltiin henkilöitä jokaisesta tilaus-toimitusprosessin vaiheesta tuotantoyksikön sisällä. Lopuksi kuvattiin yrityksen tuotetiedonhallintaperiaatteet ja määritettiin työnkulku prosessin eri vaiheissa. Samalla kuin uusi tuotetiedonhallintajärjestelmä otetaan käyttöön, on yrityksessä omaksuttava tuotetiedonhallinnan ajatusmalli. Tuoterakenteen hallinta jakautuu nyt eri toimintojen kesken, jolloin suunnittelun rakenne, tuotannon rakenne ja huoltorakenne ovat eri ihmisten vastuulla. Näiden eri rakenteiden konfigurointi tilaus-toimitus prosessin aikana määrää missä järjestyksessä toiminnot on suoritettava eri järjestelmien välillä. Monikansallinen suunnitteluorganisaatio on myös otettava huomioon tilauksenkulun aikana. Tuotetiedonhallintajärjestelmää käytetään yhdessä tuttujen suunnitteluohjelmien sekä toiminnanohjausjärjestelmän (ERP) kanssa. Työnkulkukaaviossa määritellään koko yritystä koskeva malli siitä, miten ja missä järjestyksessä tehtävät on suoritettava eri järjestelmissä tilaus-toimitus prosessin aikana. Tässä työssä tutkittiin tuotteen määrittelyn ja suunnittelutiedon hallinnan kannalta oleellisimmat tilaus-toimitusprosessiin kuuluvat toiminnot; myynti, myynnin tuki, tuotannon ohjaus, sovellussuunnittelu ja dokumentointi. Tulevaisuudessa on suositeltavaa pohtia tuotetiedonhallintajärjestelmän käyttöönottoa myös tuotannossa ja ostoissa. Tilaus-toimitusprosessiin liittyvät kehitysmahdollisuudet kannattaisi seuraavaksi kohdistaa tilauksen määrittelyvaiheeseen myyjä-asiakas rajapinnassa, jossa tehdyt virheet kertautuvat jokaisessa prosessin vaiheessa.

A pulsatile flow model for in vitro quantitative evaluation of prosthetic valve regurgitation

A pulsatile pressure-flow model was developed for in vitro quantitative color Doppler flow mapping studies of valvular regurgitation. The flow through the system was generated by a piston which was driven by stepper motors controlled by a computer. The piston was connected to acrylic chambers designed to simulate "ventricular" and "atrial" heart chambers. Inside the "ventricular" chamber, a prosthetic heart valve was placed at the inflow connection with the "atrial" chamber while another prosthetic valve was positioned at the outflow connection with flexible tubes, elastic balloons and a reservoir arranged to mimic the peripheral circulation. The flow model was filled with a 0.25% corn starch/water suspension to improve Doppler imaging. A continuous flow pump transferred the liquid from the peripheral reservoir to another one connected to the "atrial" chamber. The dimensions of the flow model were designed to permit adequate imaging by Doppler echocardiography. Acoustic windows allowed placement of transducers distal and perpendicular to the valves, so that the ultrasound beam could be positioned parallel to the valvular flow. Strain-gauge and electromagnetic transducers were used for measurements of pressure and flow in different segments of the system. The flow model was also designed to fit different sizes and types of prosthetic valves. This pulsatile flow model was able to generate pressure and flow in the physiological human range, with independent adjustment of pulse duration and rate as well as of stroke volume. This model mimics flow profiles observed in patients with regurgitant prosthetic valves.