We present a series of empirical evidences on the dynamics of price instabilities in financial markets and propose a new Hawkes modelling approach. Specifically, analysing the recent high frequency dynamics of a set of US stocks, we find that since 2001 the level of synchronization of large price movements across assets has significantly increased. We find that only a minor fraction of these systemic events can be connected with the release of pre-announced macroeconomic news. Finally, the larger is the multiplicity of the event - i.e. how many assets have swung together - the larger is the probability of a new event occurring in the near future, as well as its multiplicity. To reproduce these facts, due to the self- and cross-exciting nature of the event dynamics, we propose an approach based on Hawkes processes. For each event, we directly model the multiplicity as a multivariate point process, neglecting the identity of the specific assets. This allows to introduce a parsimonious parametrization of the kernel of the process and to achieve a reliable description of the dynamics of large price movements for a high-dimensional portfolio.

Collective synchronization and high frequency systemic instabilities in financial markets / Lucio Maria Calcagnile, ; Bormetti, Giacomo; Michele, Treccani; Stefano, Marmi; Lillo, Fabrizio. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - ELETTRONICO. - 18:02(2018), pp. 237-247. [10.1080/14697688.2017.1403141]

Collective synchronization and high frequency systemic instabilities in financial markets

Giacomo Bormetti;Fabrizio Lillo
2018

Abstract

We present a series of empirical evidences on the dynamics of price instabilities in financial markets and propose a new Hawkes modelling approach. Specifically, analysing the recent high frequency dynamics of a set of US stocks, we find that since 2001 the level of synchronization of large price movements across assets has significantly increased. We find that only a minor fraction of these systemic events can be connected with the release of pre-announced macroeconomic news. Finally, the larger is the multiplicity of the event - i.e. how many assets have swung together - the larger is the probability of a new event occurring in the near future, as well as its multiplicity. To reproduce these facts, due to the self- and cross-exciting nature of the event dynamics, we propose an approach based on Hawkes processes. For each event, we directly model the multiplicity as a multivariate point process, neglecting the identity of the specific assets. This allows to introduce a parsimonious parametrization of the kernel of the process and to achieve a reliable description of the dynamics of large price movements for a high-dimensional portfolio.
2018
Collective synchronization and high frequency systemic instabilities in financial markets / Lucio Maria Calcagnile, ; Bormetti, Giacomo; Michele, Treccani; Stefano, Marmi; Lillo, Fabrizio. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - ELETTRONICO. - 18:02(2018), pp. 237-247. [10.1080/14697688.2017.1403141]
Lucio Maria Calcagnile, ; Bormetti, Giacomo; Michele, Treccani; Stefano, Marmi; Lillo, Fabrizio
File in questo prodotto:
File Dimensione Formato  
Calcagnile_etal_2017.pdf

accesso aperto

Tipo: Postprint
Licenza: Licenza per Accesso Aperto. Creative Commons Attribuzione - Non commerciale (CCBYNC)
Dimensione 2.61 MB
Formato Adobe PDF
2.61 MB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/611016
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 20
  • ???jsp.display-item.citation.isi??? 19
social impact