INFORMATION FLOW DEPENDENCE IN FINANCIAL MARKETS

Markus Michaelsen ()
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Markus Michaelsen: Faculty of Business, Economics and Social Sciences, Universität Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2020, vol. 23, issue 05, 1-34

Abstract: In response to empirical evidence, we propose a continuous-time model for multivariate asset returns with a two-layered dependence structure. The price process is subject to multivariate information arrivals driving the market activity modeled by nondecreasing pure-jump Lévy processes. A Lévy copula determines the jump dependence and allows for a generic multivariate information flow with a flexible structure. Conditional on the information flow, asset returns are jointly normal. Within this setup, we provide an estimation framework based on maximum simulated likelihood. We apply novel multivariate models to equity data and obtain estimates which meet an economic intuition with respect to the two-layered dependence structure.

Keywords: Lévy processes; Lévy copulas; dependence modeling; weak multivariate subordination; variance gamma; simulated likelihood (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219024920500296

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