Testing for Private Information Using Trade Duration Models with Unobserved Market Heterogeneity: The Case of Banco Popular
Research Institute of Applied Economics Working Paper 2019/07
23 Pages Posted: 9 May 2019
Date Written: April 24, 2019
In this paper, we attempt to assess the potential importance of different types of traders (i.e., those with public and private information) in financial markets using a specification of the standardized duration. This approach allows us to test unobserved heterogeneity in a nonlinear version based on a self-exciting threshold autoregressive conditional duration model. We illustrate the relevance of this procedure for identifying the presence of private information in the final days of trading of Banco Popular, the first bank rescued by the European Single Resolution Board.
Keywords: conditional duration, threshold models, finite and infinite mixtures, private information, bank failure
JEL Classification: C22, C41, D53, D82, G10, G12, G14
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