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Applications of multi-variate Hawkes process to joint modelling of sentiment and market return events

Yang, Steve Y., Liu, Anqi, Chen, Jing and Hawkes, Alan G. 2017. Applications of multi-variate Hawkes process to joint modelling of sentiment and market return events. Quantitative Finance 18 (2) , pp. 295-310. 10.1080/14697688.2017.1403156

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Abstract

To investigate the complex interactions between market events and investor sentiment, we employ a multivariate Hawkes process to evaluate dynamic effects among four types of distinct events: positive returns, negative returns, positive sentiment and negative sentiment. Using both intraday S&P 500 return data and Thomson Reuters News sentiment data from 2008 to 2014, we find: a) self-excitation is strong for all four types of events at 15 minutes time scale; b) there is a significant mutual-excitation between positive returns and positive sentiment, and negative returns and negative sentiment; c) decay of return events is almost twice as fast as sentiment events, which means market prices move faster than investor sentiment changes; d) positive sentiment shocks tend to generate negative price jumps; and e) the cross- excitation between positive and negative sentiments is stronger than their self-excitation. These findings provide further understanding of investor sentiment and its intricate interactions with market returns.

Item Type: Article
Date Type: Published Online
Status: Published
Schools: Mathematics
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
Additional Information: Special Issue on ‘Hawkes Processes in Finance’
Publisher: Taylor & Francis (Routledge): SSH Titles
ISSN: 1469-7688
Date of First Compliant Deposit: 14 December 2017
Date of Acceptance: 1 November 2017
Last Modified: 09 Sep 2019 13:04
URI: http://orca.cf.ac.uk/id/eprint/107353

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