Exploiting Spillovers to forecast Crashes

Arbeitspapier

We develop Hawkes models in which events are triggered through self as well as cross-excitation. We examine whether incorporating cross-excitation improves the forecasts of extremes in asset returns compared to only self-excitation. The models are applied to US stocks, bonds and dollar exchange rates. In-sample, a Lagrange Multiplier test indicates the existence of cross-excitation for these series. Out-of-sample, we find that the models that include spillover effects forecast crashes and the Value-at-Risk significantly more accurately than the models without.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 15-118/III

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Financial Forecasting and Simulation
• Subject: Hawkes processes ; extremal dependence ; Value-at-Risk ; financial crashes ; spillover

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gresnigt, Francine ; Kole, Erik ; Franses, Philip Hans
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/125113
• Last update: 10.03.2025, 11:46 AM CET