Duration, Volume and Volatility Impact of Trades

ECB Working Paper No. 125

47 Pages Posted: 12 Feb 2002

Date Written: February 2002

Abstract

This paper develops a new econometric framework to model duration, volume and volatility simultaneously. We obtain an econometric reduced form that incorporates causal and feedback effects among these variables. We construct impulse-response functions that show how the system reacts to a perturbation of its long-run equilibrium. The methodology is applied to two groups of stocks from NYSE, classified according to their trade intensity. We document how the two groups of stocks are characterised by different dynamics: 1) volume is more persistent for frequently traded stocks than for the infrequently traded ones; 2) the well-known positive relationship between volume and price variability holds only for the frequently traded stocks at the ultra high frequency level; 3) the trade arrival process can be considered exogenous only for the not frequently traded stocks; 4) the more frequently traded the stock, the faster the market returns to its full information equilibrium after a perturbation.

Keywords: Autoregressive Conditional Duration, GARCH, Ultra High Frequency Data, Empirical Market Microstructure

JEL Classification: C32, G14

Suggested Citation

Manganelli, Simone, Duration, Volume and Volatility Impact of Trades (February 2002). ECB Working Paper No. 125. Available at SSRN: https://ssrn.com/abstract=300200

Simone Manganelli (Contact Author)

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Frankfurt am Main, 60311
Germany

HOME PAGE: http://www.simonemanganelli.org

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