Applications of a multivariate Hawkes process to joint modeling of sentiment and market return events |
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Authors: | Steve Y. Yang Anqi Liu Jing Chen Alan Hawkes |
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Affiliation: | 1. School of Business, Stevens Institute of Technology, 1 Castle Point on Hudson, Hoboken, NJ, 07030USA.syang14@stevens.edu;3. School of Mathematics, Cardiff University, Senghennydd Road, Cardiff, CF24 4AGUK.;4. School of Management, Swansea University Bay Campus, Fabian Way, Swansea, SA1 8ENUK. |
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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 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. |
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Keywords: | Point process Hawkes process Investor sentiment Return jumps News sentiment |
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