Dynamic Factor Models for Multivariate Count Data: An Application to Stock-Market Trading Activity

37 Pages Posted: 22 Jul 2008 Last revised: 27 Jul 2008

See all articles by Robert Jung

Robert Jung

University of Hohenheim - Institute of Economics

Roman Liesenfeld

University of Cologne, Department of Economics

Jean-Francois Richard

University of Pittsburgh - Department of Economics

Date Written: July 22, 2008

Abstract

We propose a dynamic factor model for the analysis of multivariate time series count data. Our model allows for idiosyncratic as well as common serially correlated latent factors in order to account for potentially complex dynamic interdependence between series of counts. The model is estimated under alternative count distributions (Poisson and negative binomial). Maximum Likelihood estimation requires high-dimensional numerical integration in order to marginalize the joint distribution with respect to the unobserved dynamic factors. We rely upon the Monte-Carlo integration procedure known as Efficient Importance Sampling which produces fast and numerically accurate stimates of the likelihood function. The model is applied to time series data consisting of numbers of trades in 5 inutes intervals for five NYSE stocks from two industrial sectors. The estimated model accounts for all key dynamic and distributional features of the data. We find strong evidence of a common factor which we interpret as reflecting market-wide news. In contrast, sector-specific factors are found to be statistically insignificant.

Keywords: Dynamic latent variables, Importance sampling, Mixture of distribution models, Poisson distribution, Simulated Maximum Likelihood

JEL Classification: C15, C32, C51

Suggested Citation

Jung, Robert C. and Liesenfeld, Roman and Richard, Jean-Francois, Dynamic Factor Models for Multivariate Count Data: An Application to Stock-Market Trading Activity (July 22, 2008). Available at SSRN: https://ssrn.com/abstract=1169222 or http://dx.doi.org/10.2139/ssrn.1169222

Robert C. Jung

University of Hohenheim - Institute of Economics ( email )

Schloss-Mittelhof (Ost)
70593 Stuttgart
Germany

Roman Liesenfeld (Contact Author)

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 Köln
Germany

Jean-Francois Richard

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States
412-648-1750 (Phone)

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