# Exogenous and endogenous factors affecting stock market transactions: A Hawkes process analysis of the Tokyo Stock Exchange during the COVID-19 pandemic

## TL;DR

This paper uses a Hawkes process model to analyze how external and internal factors influence stock transactions in Tokyo during the pandemic.

## Contribution

A novel EM algorithm is introduced to estimate exogenous and endogenous factors in stock transactions.

## Key findings

- Transaction frequency changed significantly in response to policy announcements.
- High market capitalization stocks respond more to external news but show weak internal transaction excitation.
- There is significant heterogeneity in transaction frequency among individual stocks.

## Abstract

Transactions in financial markets are not evenly spaced but can be concentrated within a short period of time. In this study, we investigated the factors that determine the transaction frequency in financial markets. Specifically, we employed the Hawkes process model to identify exogenous and endogenous forces governing transactions of individual stocks in the Tokyo Stock Exchange during the COVID-19 pandemic. To enhance the accuracy of our analysis, we introduced a novel EM algorithm for the estimation of exogenous and endogenous factors that specifically addresses the interdependence of the values of these factors over time. We detected a substantial change in the transaction frequency in response to policy change announcements. Moreover, there is significant heterogeneity in the transaction frequency among individual stocks. We also found a tendency where stocks with high market capitalization tend to significantly respond to external news, while their excitation relationship between transactions is weak. This suggests the capability of quantifying the market state from the viewpoint of the exogenous and endogenous factors generating transactions for various stocks.