Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models

Clive Bowsher

No 2005-W26, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: A continuous time econometric modelling framework for multivariate financial market event (or 'transactions') data is developed in which the model is specified via the vector conditional intensity. This has the advantage that the conditioning information set is updated continuously in time as new information arrives. Generalised Hawkes (g-Hawkes) models are introduced that are sufficiently flexible to incorporate `inhibitory' events and dependence between trading days. Novel omnibus specification tests for parametric models based on a multivariate random time change theorem are proposed. A computationally efficient thinning algorithm for simulation of g-Hawkes processes is also developed. A continuous time, bivariate point process model of the timing of trades and mid-quote changes is presented for a New York Stock Exchange stock and the empirical findings are related to the market microstructure literature. The two-way interaction of trades and quote changes is found to be important empirically. Furthermore, the model delivers a continuous record of instantaneous volatility that is conditional on the timing of trades and quote changes.

Keywords: Point process; conditional intensity; Hawkes process; specification test; random time change; transactions data; market microstructure. (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 G10 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2005-10-01
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-fin, nep-fmk and nep-ict
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Modelling security market events in continuous time: Intensity based, multivariate point process models (2007)
Working Paper: Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models (2003)
Working Paper: Modelling Security Market Events in Continuous Time: Intensity based, Multivariate Point Process Models (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0526

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