Trades and Quotes: A Bivariate Point Process

UCSD Economics Discussion Paper 98-07

Posted: 20 Aug 1998

See all articles by Asger Lunde

Asger Lunde

Aarhus University - School of Economics and Management; CREATES

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: February 1998

Abstract

Recent empirical work has studied point processes of transactions in financial markets and observed clear time dependent patterns in these arrival times. However these studies do not examine the timing of quoted price changes. This paper formulates a bivariate point process to jointly analyze transaction and quote arrivals. In microstructure models, transactions may reveal private information which is then incorporated into new prices. This paper examines the speed of this information flow and the circumstances which govern it. One of the main conclusions are that conditional on past quote times, the impact of trade information is to make quote durations longer when there is more information flow rather than less. This is interpreted as evidence that limit order suppliers become more cautious in the presence of apparent informational trading.

JEL Classification: C40, C51, G10

Suggested Citation

Lunde, Asger and Engle, Robert F., Trades and Quotes: A Bivariate Point Process (February 1998). UCSD Economics Discussion Paper 98-07. Available at SSRN: https://ssrn.com/abstract=106168

Asger Lunde

Aarhus University - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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