An Alternative Semiparametric Regression Approach to Nonlinear Duration Modeling: Theory and Practice

60 Pages Posted: 18 Sep 2010

See all articles by Jiti Gao

Jiti Gao

Monash University - Department of Econometrics & Business Statistics

Pipat Wongsaart

University of Western Australia; University of Adelaide

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Date Written: September 15, 2010

Abstract

This paper puts forward an alternative semiparametric regression approach to a nonlinear ACD modeling. The semiparametric functional form of the dependence of the conditional intensity on past durations suggests that the model be called the Semiparametric ACD (SEMI-ACD) model. The development of the SEMI-ACD model relies on two important factors; namely (i) an iterative estimation algorithm, which is devised to address the latency problem arises because the conditional expectation of duration with respect to the past history is not observable in practice, and (ii) an adaptive estimation of a partially linear additive autoregressive process.

The theoretical study involves two fundamental issues. The first and by far the most important is the consistency of the estimation algorithm. Results will be exhibited for a variety of modes of consistency.

Furthermore, to enrich the statistical rigor of the SEMI-ACD estimation procedure, the asymptotic properties of the semiparametric estimators are established under the conditions of the algorithm consistency. These asymptotic results are presented in conjunction with simulated examples which illustrate a robust finite-sample performance of the model. Finally, the paper applies the SEMI-ACD procedure to model the price duration process of the \$US/\$EUR exchange rate.

Keywords: Dependent point process, duration, hazard rate and random measure, irregularly spaced high frequency data, semiparametric time series

JEL Classification: C14, C41, F31

Suggested Citation

Gao, Jiti and Wongsaart, Pipat and Allen, David Edmund, An Alternative Semiparametric Regression Approach to Nonlinear Duration Modeling: Theory and Practice (September 15, 2010). Available at SSRN: https://ssrn.com/abstract=1677752 or http://dx.doi.org/10.2139/ssrn.1677752

Jiti Gao (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
61399031675 (Phone)
61399032007 (Fax)

HOME PAGE: http://www.jitigao.com

Pipat Wongsaart

University of Western Australia ( email )

Crawley, Western Australia
Australia

University of Adelaide

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

David Edmund Allen

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

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