Capturing the zero: a new class of zero-augmented distributions and multiplicative error processes

  • We propose a novel approach to model serially dependent positive-valued variables which realize a non-trivial proportion of zero outcomes. This is a typical phenomenon in financial time series observed on high frequencies, such as cumulated trading volumes or the time between potentially simultaneously occurring market events. We introduce a flexible pointmass mixture distribution and develop a semiparametric specification test explicitly tailored for such distributions. Moreover, we propose a new type of multiplicative error model (MEM) based on a zero-augmented distribution, which incorporates an autoregressive binary choice component and thus captures the (potentially different) dynamics of both zero occurrences and of strictly positive realizations. Applying the proposed model to high-frequency cumulated trading volumes of liquid NYSE stocks, we show that the model captures both the dynamic and distribution properties of the data very well and is able to correctly predict future distributions. Keywords: High-frequency Data , Point-mass Mixture , Multiplicative Error Model , Excess Zeros , Semiparametric Specification Test , Market Microstructure JEL Classification: C22, C25, C14, C16, C51

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Author:Nikolaus HautschORCiDGND, Peter MalecGND, Melanie SchienleORCiDGND
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2010,19
Series (Serial Number):CFS working paper series (2010, 19)
Document Type:Working Paper
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2010/12/14
Tag:Excess Zeros; High-frequency Data; Market Microstructure; Multiplicative Error Model; Point-mass Mixture; Semiparametric Specification Test
GND Keyword:Zeitreihenanalyse; Finanzwirtschaft
Issue:November 2010
Page Number:32
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht