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

Dungey, M ORCID: 0000-0003-0074-2314, Erdemlioglu, D, Matei, M and Yang, X 2018 , 'Testing for mutually exciting jumps and financial flights in high frequency data' , Journal of Econometrics, vol. 202, no. 1 , pp. 18-44 , doi: 10.1016/j.jeconom.2017.09.002.

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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 sizeand reasonable power in finite sample cases. Using our mutual excitation tests, we empiricallycharacterize the dynamics of financial flights in forms of flight-to-safety and flight-to-quality. Theresults indicate that mutually exciting jumps and risk-off trades mostly occur in periods of highmarket stress. Flight-to-safety episodes (from stocks to gold) arrive more frequently than do flightto-qualityspells (from stocks to bonds). We further find evidence that reverse cross-excitations orseeking-return-strategies exhibit significant asymmetry over the business cycle, reflecting the factthat investors appear to be selling gold—rather than bonds—to invest in stocks during good marketconditions.

Item Type: Article
Authors/Creators:Dungey, M and Erdemlioglu, D and Matei, M and Yang, X
Keywords: contagion, high frequency, excitation
Journal or Publication Title: Journal of Econometrics
Publisher: Elsevier Science Sa
ISSN: 0304-4076
DOI / ID Number: 10.1016/j.jeconom.2017.09.002
Copyright Information:

© 2017 Elsevier B.V

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