Finance

On the "mementum" of Meme Stocks*

This paper introduces "mementum," a new concept describing periods where social media coordination significantly drives stock prices and trading volumes. Using a regime-switching cointegration model on Twitter data, the authors successfully identify these "meme periods" in well-known meme stocks like GameStop and AMC, distinguishing them from other periods of high social media activity in non-meme stocks. The study is limited to Twitter data for its empirical application, though the methodology is presented as platform-agnostic.

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Finance Oct 22, 07:25 PM

Automated Market Making and Loss-Versus-Rebalancing

This paper develops a Black-Scholes-inspired model to quantify "loss-versus-rebalancing" (LVR), the cost incurred by decentralized exchange liquidity providers due to price slippage from informed arbitrageurs. The model shows that AMM LPs systematically trade at worse-than-market prices, with LVR depending on asset volatility and marginal liquidity. Empirically validated on Uniswap v2 WETH-USDC, the study demonstrates that delta-hedging LP positions significantly reduces market risk, making LP returns primarily a bet on fees offsetting LVR.

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Finance Oct 08, 02:11 PM

From Tweet to Theft: Tracing the Flow of Stolen Cryptocurrency

This paper traces the flow of stolen cryptocurrency from a Twitter scam involving fake giveaways of Uniswap (UNI) tokens. The scammers used social media to lure victims into sending UNI to their addresses, then consolidated the funds and swapped them for ETH before depositing them into accounts on Binance and SimpleSwap, obfuscating the trail.

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Finance Sep 11, 08:51 PM

Breaking the Trend: How to Avoid Cherry-Picked Signals

This study finds that a simple Exponential Moving Average (EMA) is highly effective for trend following in futures markets, outperforming more complex indicator combinations. The empirical Sharpe ratios closely match the theoretical predictions, suggesting that using a single EMA with an optimized time scale is sufficient for capturing trends and doesn't require the complexity of a large basket of indicators.

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Finance Aug 10, 07:38 PM

AI-Powered Trading, Algorithmic Collusion, and Price Efficiency

This paper shows that AI-powered trading algorithms can learn to collude in simulated financial markets, leading to supra-competitive profits and reduced market efficiency. The study identifies two distinct algorithmic mechanisms underlying AI collusion: one based on price-trigger strategies, and the other driven by over-pruning bias in learning. The authors also show how different market parameters, such as noise trading risk and the presence of information-insensitive investors, can affect the emergence and type of AI collusion.

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Finance Jul 31, 04:52 PM

Do Investors Care about Carbon Risk?

This paper finds that stocks of companies with higher total carbon emissions, and increases in emissions, earn higher returns. This suggests that investors are already pricing in carbon emission risk and demanding compensation for their exposure to it. Interestingly, emission intensity has no significant impact on returns, despite its common use as a screening indicator by institutional investors.

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Finance Jul 14, 05:18 PM

ESG metrics and social equity: Investigating commensurability

The paper finds significant divergence in the elements assessed across four major ESG databases, with only four elements common to all. Despite this, ESG investments show promise for stable and high returns, especially in the long term. Further, the study finds that key elements considered in social equity studies are largely reflected in major ESG metrics.

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Finance Jul 14, 05:14 PM

Mandatory CSR and sustainability reporting: economic analysis and literature review

Mandating CSR and sustainability reporting could improve transparency, comparability, and investor decision-making, potentially leading to better capital allocation and real effects on firm behavior. However, the effectiveness of such a mandate depends crucially on addressing implementation challenges like defining materiality, mitigating boilerplate language, ensuring enforcement, and considering potential unintended consequences for firms and various stakeholders.

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Finance Jul 14, 05:12 PM

BANKING ON DEPOSITS: MATURITY TRANSFORMATION WITHOUT INTEREST RATE RISK

This paper argues that maturity transformation, traditionally seen as exposing banks to interest rate risk, actually reduces it thanks to the deposit franchise. Banks' market power over deposits lets them offer rates insensitive to market changes, while operational costs are also largely fixed. This creates a natural hedge for long-term lending, stabilizing profits despite interest rate fluctuations.

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Finance Jul 14, 07:03 AM

FOREIGN SAFE ASSET DEMAND AND THE DOLLAR EXCHANGE RATE

This paper links the U.S. dollar's exchange rate to the convenience yield foreign investors receive from holding U.S. safe assets, particularly Treasuries. They show that a widening Treasury basis, indicating a higher convenience yield for foreign investors, coincides with dollar appreciation, supporting the U.S.'s unique role as a safe asset provider and the dollar's status as a reserve currency.

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Finance Jul 14, 07:03 AM

The distributional consequences of Bitcoin

The paper argues that a continuously rising Bitcoin price, detached from any real economic function, results in wealth redistribution from latecomers and non-holders to early adopters. This redistribution occurs even without considering trading behavior or a bubble burst, impacting consumption levels and potentially widening societal disparities.

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Finance Jul 08, 11:23 AM