Modeling aggressive market order placements with Hawkes factor models

Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an exogenous part and two endogenous processes reflecting the self-ex...

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Bibliographic Details
Published in:PloS one 2020, Vol.15 (1), p.e0226667-e0226667
Main Authors: Xu, Hai-Chuan, Zhou, Wei-Xing
Format: Article
Language:English
Subjects:
Bivariate analysis
Calibration
Clustering
Commerce - economics
Economic models
Excitation
Investments - economics
Kernels
Models, Economic
Parameter estimation
Physical Sciences
Research and Analysis Methods
Social Sciences
Stock exchanges
Subtraction
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Summary:Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an exogenous part and two endogenous processes reflecting the self-excitation and cross-excitation respectively. We calibrate the model for a Shenzhen Stock Exchange stock. We find that the exponential kernel with a smooth cut-off (i.e. the subtraction of two exponentials) produces much better calibration than the monotonous exponential kernel (i.e. the sum of two exponentials). The exogenous baseline intensity explains the U-shaped intraday pattern. Our empirical results show that the endogenous submission clustering is mainly caused by self-excitation rather than cross-excitation.
ISSN:1932-6203
1932-6203
DOI:10.1371/journal.pone.0226667