Modeling the trading process on financial markets using the MSACD model

  • We propose a new framework for modeling time dependence in duration processes. The ACD approach introduced by Engle and Russell (1998) will be extended so that the conditional expectation of the durations depends on an unobservable stochastic process which is modeled via a Markov chain. The Markov switching ACD model (MSACD) is a flexible tool for description of financial duration processes. The introduction of a latent information regime variable can be justified in the light of recent market microstructure theories. In an empirical application we show that the MSACD approach is able to capture specific characteristics of inter trade durations while alternative ACD models fail. JEL classification: C41, C22, C25, C51, G14

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Author:Reinhard HujerGND, Stefan Kokot, Sandra Vuletić
Document Type:Report
Date of Publication (online):2005/11/21
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/11/21
Tag:Markov switching models; duration models; financial transaction data; market microstructure; time series models
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht