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Testing for mutually exciting jumps and financial flights in high frequency data

Citation

Dungey, M and Erdemlioglu, D and Matei, M and Yang, X, Testing for mutually exciting jumps and financial flights in high frequency data, Journal of Econometrics pp. 1-73. ISSN 0304-4076 (In Press) [Refereed Article]


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DOI: doi:10.1016/j.jeconom.2017.09.002

Abstract

We propose a new nonparametric test to identify mutually exciting jumps in high frequency data. We derive the asymptotic properties of the test statistics and show that the tests have good size and reasonable power in finite sample cases. Using our mutual excitation tests, we empirically characterize the dynamics of financial flights in forms of flight-to-safety and flight-to-quality. The results indicate that mutually exciting jumps and risk-off trades mostly occur in periods of high market stress. Flight-to-safety episodes (from stocks to gold) arrive more frequently than do flightto-quality spells (from stocks to bonds). We further find evidence that reverse cross-excitations or seeking-return-strategies exhibit significant asymmetry over the business cycle, reflecting the fact that investors appear to be selling goldórather than bondsóto invest in stocks during good market conditions.

Item Details

Item Type:Refereed Article
Keywords:contagion, high frequency, excitation
Research Division:Commerce, Management, Tourism and Services
Research Group:Banking, Finance and Investment
Research Field:Financial Econometrics
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Savings and Investments
Author:Dungey, M (Professor Mardi Dungey)
Author:Matei, M (Dr Marius Matei)
ID Code:121779
Year Published:In Press
Deposited By:Economics and Finance
Deposited On:2017-10-14
Last Modified:2017-10-16
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