Institute of Information Theory and Automation

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New Approaches to Monitoring and Forecasting Financial Markets

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The proposed research is aimed to contribute to understanding the factors influencing prices on financial markets. We plan to focus to changes in the fundamentals of financial assets, speculation, market sentiments and various shocks like unexpected changes of interest rates, policies, or criminal activities resulting in short-term fluctuations and even long-term swings between the periods of bull and bear markets. For a long term, the financial economics has been dominated by the efficient market hypothesis which was unable to capture these phenomena and thus it was unable to yield robust predictions. In our research, we plan to use approaches connecting quantitative analysis and behavioral approaches, namely the prospect theory, heterogeneous agents modeling and nonlinear dynamics approaches such as the catastrophe theory with bifurcations, which allow the existence of multiple equilibria and sunspot effects. The result of our research could be theories and models linking the macroeconomic prices variables, the evolution of financial markets, and the above mentioned "unsystematic" factors. The resulting methods and models will be applied, tested and calibrated on both wellestablished and emerging markets. Impacts of capital markets bifurcations on monetary macroeconomic equillibrium will be analyzed as well.
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2013-01-17 15:10