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Modeling aggressive market order placements with Hawkes factor models

Hai-Chuan Xu and Wei-Xing Zhou

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Abstract: Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an exogenous part and two endogenous processes reflecting the self-excitation and cross-excitation respectively. We calibrate the model for an SSE stock. We find that the exponential kernel with a smooth cut-off (i.e. the subtraction of two exponentials) produces much better calibration than the monotonous exponential kernel (i.e. the sum of two exponentials). The exogenous baseline intensity explains the $U$-shaped intraday pattern. Our empirical results show that the endogenous submission clustering is mainly caused by self-excitation rather than cross-excitation.

Date: 2018-11
New Economics Papers: this item is included in nep-mst
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Published in PLoS ONE 15 (1), e0226667 (2020)

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