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Autocorrelation of the Trade Process: Evidence from the Helsinki Stock Exchange

Posted: 16 Jul 2009  

Bernard Ben Sita

Lebanese American University

Date Written: July 15, 2009

Abstract

This study investigates how the trade duration-based intensity modifies the first-order autocorrelation and the transitory variance of the trade process. Because prices are conditional expected values, a structural model in which the trade duration represents the rate at which prices incorporate new information is developed. The model is an extension of the Madhavan, Richardson and Roomans (1997) model with the result that parameters characterizing the arrival rate of new information are derived. Testing this model with data from the Helsinki Stock Exchange, it is documented that a model ignoring trading intensity effects on price changes would underestimate the transitory effects of the trade process. This finding entails that the trade duration captures neglected elements of implicit trading costs that increase with market microstructure effects.

Keywords: Trading intensity, trade duration, autocorrelation, order flow

JEL Classification: C30, C41, G14

Suggested Citation

Ben Sita, Bernard, Autocorrelation of the Trade Process: Evidence from the Helsinki Stock Exchange (July 15, 2009). Available at SSRN: https://ssrn.com/abstract=1434564

Bernard Mualuke Ben Sita (Contact Author)

Lebanese American University ( email )

P.O. Box 13 - 5053
Chouran-Beirut 1102 2801
Lebanon

HOME PAGE: http://www.lau.edu.lb

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