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Modelling order arrivals at price limits using Hawkes processes

Author

Listed:
  • Haghighi, Afshin
  • Fallahpour, Saeid
  • Eyvazlu, Reza

Abstract

Some financial market regulators utilize a price limit mechanism. A number of past studies show that the price limit mechanism has a considerable impact on investors’ behaviour. The altered mechanism per se, and its impact on investors’ behaviour, change the order flow dynamics at price limit hits. We have proposed a model using Hawkes processes to model order arrivals when market dynamics switch to price limit hits. Goodness of fit tests showed that the model appropriately captures order arrival dynamics of intraday data from the Tehran Securities Exchange (TSE), which is a volatile market with narrow banded price limits (±4).

Suggested Citation

  • Haghighi, Afshin & Fallahpour, Saeid & Eyvazlu, Reza, 2016. "Modelling order arrivals at price limits using Hawkes processes," Finance Research Letters, Elsevier, vol. 19(C), pages 267-272.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:267-272
    DOI: 10.1016/j.frl.2016.08.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Price limits; Hawkes processes; Order flow; High frequency modelling;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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