Modelling order arrivals at price limits using Hawkes processes

Afshin Haghighi, Saeid Fallahpour and Reza Eyvazlu

Finance Research Letters, 2016, vol. 19, issue C, 267-272

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).

Keywords: Price limits; Hawkes processes; Order flow; High frequency modelling (search for similar items in EconPapers)
JEL-codes: C32 C51 G14 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:19:y:2016:i:c:p:267-272

DOI: 10.1016/j.frl.2016.08.012

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