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Modelling systemic price cojumps with Hawkes factor models

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  • Giacomo Bormetti
  • Lucio Maria Calcagnile
  • Michele Treccani
  • Fulvio Corsi
  • Stefano Marmi
  • Fabrizio Lillo

Abstract

Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating a set of 20 high cap stocks traded at the Italian Stock Exchange, we find that there is a large number of high frequency cojumps. We show that the dynamics of these jumps is described neither by a multivariate Poisson nor by a multivariate Hawkes model. We introduce a Hawkes one factor model which is able to capture simultaneously the time clustering of jumps and the high synchronization of jumps across assets.

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File URL: http://arxiv.org/pdf/1301.6141
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Paper provided by arXiv.org in its series Papers with number 1301.6141.

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Date of creation: Jan 2013
Date of revision: Mar 2013
Handle: RePEc:arx:papers:1301.6141

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Web page: http://arxiv.org/

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  8. Ioane Muni Toke & Fabrizio Pomponio, 2012. "Modelling Trades-Through in a Limit Order Book Using Hawkes Processes," Post-Print, HAL hal-00745554, HAL.
  9. Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely, 2007. "Jumps, cojumps and macro announcements," Working Papers, Federal Reserve Bank of St. Louis 2007-032, Federal Reserve Bank of St. Louis.
  10. Clive Bowsher, 2002. "Modelling Security Market Events in Continuous Time: Intensity based, Multivariate Point Process Models," Economics Papers 2002-W22, Economics Group, Nuffield College, University of Oxford.
  11. Christian T. Brownlees & Giampiero Gallo, 2006. "Financial Econometric Analysis at Ultra–High Frequency: Data Handling Concerns," Econometrics Working Papers Archive, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti" wp2006_03, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
  12. Jiang, George J. & Oomen, Roel C.A., 2008. "Testing for jumps when asset prices are observed with noise-a "swap variance" approach," Journal of Econometrics, Elsevier, Elsevier, vol. 144(2), pages 352-370, June.
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  14. Toke, Ioane Muni & Pomponio, Fabrizio, 2012. "Modelling trades-through in a limit order book using hawkes processes," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(22), pages 1-23.
  15. Yacine Aït-Sahalia & Julio Cacho-Diaz & Roger J.A. Laeven, 2010. "Modeling Financial Contagion Using Mutually Exciting Jump Processes," NBER Working Papers 15850, National Bureau of Economic Research, Inc.
  16. Bjørn Eraker, 2004. "Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices," Journal of Finance, American Finance Association, American Finance Association, vol. 59(3), pages 1367-1404, 06.
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