Applications of a multivariate Hawkes process to joint modeling of sentiment and market return events

Steve Y. Yang, Anqi Liu, Jing Chen and Alan Hawkes

Quantitative Finance, 2018, vol. 18, issue 2, 295-310

Abstract: To investigate the complex interactions between market events and investor sentiment, we employ a multivariate Hawkes process to evaluate dynamic effects among four types of distinct events: positive returns, negative returns, positive sentiment, and negative sentiment. Using both intraday S&P 500 return data and Thomson Reuters News sentiment data from 2008 to 2014, we find: (a) self-excitation is strong for all four types of events at 15 min time scale; (b) there is a significant mutual-excitation between positive returns and positive sentiment and negative returns and negative sentiment; (c) decay of return events is almost twice as fast as sentiment events, which means market prices move faster than investor sentiment changes; (d) positive sentiment shocks tend to generate negative price jumps; and (e) the cross-excitation between positive and negative sentiments is stronger than their self-excitation. These findings provide further understanding of investor sentiment and its intricate interactions with market returns.

Date: 2018
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DOI: 10.1080/14697688.2017.1403156

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