Comparison of MSACD models

  • We propose a new framework for modelling time dependence in duration processes on financial markets. The well known autoregressive conditional duration (ACD) approach introduced by Engle and Russell (1998) will be extended in a way that allows the conditional expectation of the duration process to depend on an unobservable stochastic process which is modelled via a Markov chain. The Markov switching ACD model (MSACD) is a very flexible tool for description and forecasting of financial duration processes. In addition, the introduction of an unobservable, discrete valued 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 several specific characteristics of inter trade durations while alternative ACD models fail. JEL classification: C22, C25, C41, 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:Financial transaction data; autoregressive conditional duration(ACD) models; finite mixture distributions; nonlinear time series models
Issue:This version: January 10, 2003
Page Number:30
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht