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A0989
Topic: Contributions on VaR and extreme value theory Title: Specification testing in Hawkes models Authors:  Francine Gresnigt - Erasmus University Rotterdam (Netherlands) [presenting]
Philip Hans Franses - Erasmus School of Economics (Netherlands)
Abstract: We propose various specification tests for Hawkes models based on the Lagrange Multiplier (LM) principle. Hawkes models can be used to model the occurrence of extreme events in financial markets. Our specific testing focus is on extending a univariate model to a multivariate model, that is, we examine whether there is a conditional dependence between extreme events in markets. Simulations show that the test has good size and power, in particular for sample sizes that are typically encountered in practice. Applying the specification test for dependence to US stocks and bonds data, we find evidence for the stock-bond contagion as well as for the flight-to-quality phenomenon.