Dynamics of Trade-by-Trade Price Movements: Decomposition and Models

Nuffield College Economics No. 1998-W19

28 Pages Posted: 30 May 2002

Multiple version iconThere are 2 versions of this paper

Date Written: January 13, 1999

Abstract

In this paper we introduce a decomposition of the joint distribution of price changes of assets recorded trade--by--trade. Our decomposition means that we can model the dynamics of price changes using quite simple and interpretable models which are easily extended in a great number of directions, including using durations and volume as explanatory variables.

Thus we provide an econometric basis for empirical work on micro market structure using time series of transactions data.

We use maximum likelihood estimation and testing methods to assess the fit of the model to a year of IBM stock price data taken from the New York Stock Exchange.

JEL Classification: C19,G12

Suggested Citation

Rydberg, Tina Hviid and Shephard, Neil, Dynamics of Trade-by-Trade Price Movements: Decomposition and Models (January 13, 1999). Nuffield College Economics No. 1998-W19. Available at SSRN: https://ssrn.com/abstract=146189 or http://dx.doi.org/10.2139/ssrn.146189

Tina Hviid Rydberg (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 3PG
United Kingdom
+44 1865 278692 (Phone)
+44 1865 278621 (Fax)

Neil Shephard

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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