Specification Testing in Hawkes Models

Arbeitspapier

We propose various specification tests for Hawkes models based on the Lagrange Multiplier (LM) principle. Hawkes models can be used to model the occurrence of extreme events in financial markets. Our specific testing focus is on extending a univariate model to a multivariate model, that is, we examine whether there is a conditional dependence between extreme events in markets. Simulations show that the test has good size and power, in particular for sample sizes that are typically encountered in practice. Applying the specification test for dependence to US stocks, bonds and exchange rate data, we find strong evidence for cross-excitation within segments as well as between segments. Therefore, we recommend that univariate Hawkes models be extended to account for the cross-triggering phenomenon.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 15-086/III

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Evaluation, Validation, and Selection
• Subject: Hawkes processes ; specification tests ; extremal dependence ; financial crashes

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/10419/125088
• Last update: 10.03.2025, 11:42 AM CET