Modelling security market events in continuous time: Intensity based, multivariate point process models

• Published in: Journal of econometrics Vol. 141; no. 2; pp. 876 - 912
• Main Author: Bowsher, Clive G.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.12.2007; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Econometrics
• Subjects: Applications; Capital market; Conditional intensity; Econometric models; Econometrics; Exact sciences and technology; Hawkes process; Insurance, economics, finance; Market microstructure; Market structure; Mathematics; Multivariate analysis; Point process; Probability and statistics; Probability theory and stochastic processes; Random time change; Sciences and techniques of general use; Securities markets; Securities trading; Specification test; Statistics; Stochastic processes; Studies; Time series; Trade; Transactions data; United States > US; Hawkes process; Market microstructure; C52; C32; Transactions data; Conditional intensity; Point process; G10; Random time change; C51; Specification test; Economics; Multivariate process; Data analysis; Conditional distribution; C32; C51; C52; G10; Finance; Interaction; Continuous time; Statistical estimation; Financial market; Point process; Conditional intensity; Hawkes process; Specification test; Random time change; Transactions data; Market microstructure; Multivariate analysis; Economic data; Statistical method; Random test; Stock exchange; Financial data; Econometrics; Stock markets; Omnibus test
• ISSN: 0304-4076; 1872-6895
• DOI: 10.1016/j.jeconom.2006.11.007

A continuous time econometric modelling framework for multivariate financial market event (or ‘transactions’) data is developed in which the model is specified via the vector conditional intensity. Generalised Hawkes models are introduced that incorporate inhibitory events and dependence between trading days. Novel omnibus specification tests based on a multivariate random time change theorem are proposed. A bivariate point process model of the timing of trades and mid-quote changes is then presented for a New York Stock Exchange stock and related to the market microstructure literature. The two-way interaction of trades and quote changes in continuous time is found to be important empirically.