Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/125088
Authors: 
Gresnigt, Francine
Kole, Erik
Franses, Philip Hans
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-086/III
Abstract: 
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.
Subjects: 
Hawkes processes
specification tests
extremal dependence
financial crashes
JEL: 
C12
C22
C32
C52
Document Type: 
Working Paper

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