A Dynamic Semiparametric Proportional Hazard Model

Posted: 1 Nov 2008

See all articles by Frank Gerhard

Frank Gerhard

Barclays Investment Bank

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2008

Abstract

In this paper, we model the buy and sell arrival process in the limit order book market at the Australian Stock Exchange. Using a bivariate autoregressive intensity model we analyze the contemporaneous buy and sell intensity as a function of the state of the market. We find evidence that trading decisions are both information as well as liquidity driven. Confirming predictions from market microstructure theory traders submit market orders by inferring from the recent order flow and the book with respect to upper and lower tail expectations as well as trading directions. However, traders also tend to take liquidity when the liquidity supply is high. Moreover, we find evidence that traders pay more attention to recent order arrivals and the current state of the order book than to the past order flow.

Keywords: buy and sell arrival process, order book information, market depth, bivariate autoregressive intensity model, net buy pressure

JEL Classification: G14, C32, C41

Suggested Citation

Gerhard, Frank and Hautsch, Nikolaus, A Dynamic Semiparametric Proportional Hazard Model (October 30, 2008). Studies in Nonlinear Dynamics and Econometrics, Vol. 11, No. 2, 2007. Available at SSRN: https://ssrn.com/abstract=1292523

Frank Gerhard

Barclays Investment Bank ( email )

5 The North Colonnade
London, Canary Wharf E14 4BB
United Kingdom

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Gr√ľneburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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