Applications of a multivariate Hawkes process to joint modeling of sentiment and market return events

Steve Y. Yang, Anqi Liu, Jing Chen, Alan Hawkes

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

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 min 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.

Original languageEnglish
Pages (from-to)295-310
Number of pages16
JournalQuantitative Finance
Volume18
Issue number2
DOIs
StatePublished - 1 Feb 2018

Keywords

  • Hawkes process
  • Investor sentiment
  • News sentiment
  • Point process
  • Return jumps

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