Asymmetric Acd Models: Introducing Price Information in Acd Models with a Two State Transition Model

24 Pages Posted: 8 Apr 2005

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Abstract

This paper proposes an asymmetric autoregressive conditional duration (ACD) model, which extends the ACD model of Engle and Russell (1998). The asymmetry consists of letting the duration process depend on the state of the price process. If the price has increased, the parameters of the ACD model can differ from what they are if the price has decreased. The model is applied to the bid-ask quotes of two stocks traded on the NYSE and the evidence in favour of asymmetry is strong. Information effects (Easley and O'Hara 1992) are also empirically relevant. As the model is a transition model for the price process, it delivers 'market forecasts' of where prices are heading. A trading strategy based on the model is implemented using tick-by-tick data.

Keywords: Duration and transition model, High frequency data, Market microstructure

JEL Classification: C10, C41, G10

Suggested Citation

Bauwens, Luc and Giot, Pierre, Asymmetric Acd Models: Introducing Price Information in Acd Models with a Two State Transition Model. Available at SSRN: https://ssrn.com/abstract=685381

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
321
Abstract Views
1,477
rank
120,795
PlumX Metrics