Modelling Systemic Price Cojumps with Hawkes Factor Models
30 Pages Posted: 31 Jan 2013 Last revised: 12 Mar 2013
Date Written: January 25, 2013
Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating a set of 20 high cap stocks traded at the Italian Stock Exchange, we find that there is a large number of high frequency cojumps. We show that the dynamics of these jumps is described neither by a multivariate Poisson nor by a multivariate Hawkes model. We introduce a Hawkes one factor model which is able to capture simultaneously the time clustering of jumps and the high synchronization of jumps across assets.
Keywords: price cojumps, Hawkes processes, systemic shocks, high frequency data
JEL Classification: C32, C5, C51, G01, G10
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