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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 size and reasonable power in finite sample cases. Using our mutual excitation tests, we empirically characterize the dynamics of financial flights in forms of flight-to-safety and flight-to-quality. The results indicate that mutually exciting jumps and risk-off trades mostly occur in periods of high market stress. Flight-to-safety episodes (from stocks to gold) arrive more frequently than do flightto-quality spells (from stocks to bonds). We further find evidence that reverse cross-excitations or seeking-return-strategies exhibit significant asymmetry over the business cycle, reflecting the fact that investors appear to be selling gold—rather than bonds—to invest in stocks during good market conditions.

Item Type: Article
Authors/Creators:Dungey, M and Erdemlioglu, D and Matei, M and Yang, X
Keywords: contagion, high frequency, flight-to-safety, flight-to-quality, mutual excitation in jumps, high frequency data, stock-bond comovement
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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