The Lognormal Autoregressive Conditional Duration (LNACD) Model and a Comparison with an Alternative ACD Models

28 Pages Posted: 21 Jan 2014

See all articles by Yongdeng Xu

Yongdeng Xu

Cardiff University - Cardiff Business School - Economics Section

Date Written: January 20, 2013

Abstract

Engle and Russell (1998) introduce the autoregressive conditional duration (ACD) model to model the dynamics of financial duration. It is recognized that the ACD model can be specified in ARMA form. We show that as long as the innovations of the ACD model follows a lognormal distribution, the equivalent ARMA model will be Gaussian distributed. Motivated by this fact, we develop a lognormal autoregressive conditional duration (LNACD) model. The LNACD model permits a humped-shaped hazard function with one free shape parameter, which has a computational advantage compared to the existing ACD specification in the literature. We compare the performance of the LNACD model with alternative specification of ACD model. The empirical results show that the LNACD model is always superior to Exponential and Weibull ACD models and its performance is similar to the Burr and Generalized Gamma ACD models.

Keywords: ACD model, lognormal distribution, hazard function, point process

JEL Classification: G12, G14, C22

Suggested Citation

Xu, Yongdeng, The Lognormal Autoregressive Conditional Duration (LNACD) Model and a Comparison with an Alternative ACD Models (January 20, 2013). Available at SSRN: https://ssrn.com/abstract=2382159 or http://dx.doi.org/10.2139/ssrn.2382159

Yongdeng Xu (Contact Author)

Cardiff University - Cardiff Business School - Economics Section ( email )

Cardiff CF10 3EU
United Kingdom

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