Limit Laws in Trasnaction-Level Asset Price Models
49 Pages Posted: 10 Sep 2013
Date Written: July 2012
We consider pure-jump transaction-level models for asset prices in continuous time, driven by point processes. In a bivariate model that admits cointegration, we allow for time deformations to account for such effects as intraday seasonal patterns in volatility, and non-trading periods that may be different for the two assets. We also allow for asymmetries (leverage effects). We obtain the asymptotic distribution of the log-price process. For the weak fractional cointegration case, we obtain the asymptotic distribution of the ordinary least-squares estimator of the cointegrating parameter based on data sampled from an equally-spaced discretization of calendar time, and justify a feasible method of hypothesis testing for the cointegrating parameter based on the corresponding t-statistic. In the strong fractional cointegration case, we obtain the limiting distribution of a continuously-averaged tapered estimator as well as other estimators of the cointegrating parameter, and find that the rate of convergence can be affected by properties of intertrade durations. In particular, the persistence of durations (hence of volatility) can affect the degree of cointegration. We also obtain the rate of convergence of several estimators of the cointegrating parameter in the standard cointegration case. Finally, we consider the properties of the ordinary least squares estimator of the regression parameter in a spurious regression, i.e., in the absence of cointegration.
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