Modeling Market Microstructure Time Series
76 Pages Posted: 11 Nov 2008
Date Written: February 1996
Abstract
Microstructure data typically consist of trades and bid and offer quotes for financial securities that are collected at fine sampling intervals (often within the day). This paper reviews approaches taken to modeling these data. The emphasis is on the techniques of stationary multivariate time series analysis: autoregressive and moving average representations o f standard microstructure models, vector autoregressive estimation, random-walk decompositions and cointegration. The paper also discusses the challenges posed by irregular observation frequencies, discreteness and nonlinearity.
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