The Markov switching ACD model

  • 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. Furthermore, we use the MSACD to test implications of a sequential trade model.

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Author:Reinhard HujerGND, Sandra Vuletić, Stefan Kokot
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 90
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (90)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2002
Year of first Publication:2002
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/10
Tag:EM algorithm; Markov switching models; autoregressive conditional duration models; financial transaction data; finite mixture distributions; market microstructure theory; nonlinear time series models
GND Keyword:Exponential smoothing; Zeitreihenanalyse; Verweildauer; ARCH-Prozess; GARCH-Prozess; Markov-Prozess; Wertpapierhandel; Wertpapiermarkt; Mikrostrukturtheorie <Kapitalmarkttheorie>; Schätzung
Issue:April 2002
Page Number:45
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C22 Time-Series Models; Dynamic Quantile Regressions (Updated!)
C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C25 Discrete Regression and Qualitative Choice Models; Discrete Regressors (Updated!)
C Mathematical and Quantitative Methods / C4 Econometric and Statistical Methods: Special Topics / C41 Duration Analysis
Licence (German):License LogoDeutsches Urheberrecht