The Dynamic Mixed Hitting-Time Model for Multiple Transaction Prices and Times

43 Pages Posted: 13 Sep 2012 Last revised: 5 Mar 2014

See all articles by Eric Renault

Eric Renault

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Thijs van der Heijden

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Bas J. M. Werker

Tilburg University - Center for Economic Research (CentER)

Date Written: March 5, 2014

Abstract

We propose a structural model for durations between events and (a vector of) associated marks, using a multivariate Brownian motion. Successive passage times of one latent Brownian component relative to random boundaries define durations. The other, correlated, Brownian components generate the marks. Our model embeds the class of stochastic conditional (SCD) and autoregressive conditional (ACD) duration models, which impose testable restrictions on the relation between the conditional expectation and conditional volatility of durations. We strongly reject the SCD and ACD specifications for both a very liquid and less liquid NYSE-traded stock, and characterise causality relations between volatilities and durations.

Keywords: duration modeling, hitting time, trading intensity, market microstructure

JEL Classification: C41, G12

Suggested Citation

Renault, Eric and van der Heijden, Thijs and Werker, Bas J.M., The Dynamic Mixed Hitting-Time Model for Multiple Transaction Prices and Times (March 5, 2014). Journal of Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2146220 or http://dx.doi.org/10.2139/ssrn.2146220

Eric Renault

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Thijs Van der Heijden (Contact Author)

University of Melbourne - Department of Finance ( email )

198 Berkeley Street
Carlton VIC 3010
Australia

Financial Research Network (FIRN)

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

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

Bas J.M. Werker

Tilburg University - Center for Economic Research (CentER) ( email )

Econometrics and Finance Group
5000 LE Tilburg
Netherlands

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