The Stochastic Conditional Duration Model: A Latent Factor Model for the Analysis of Financial Durations

37 Pages Posted: 8 Apr 2005

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

David Veredas

Vlerick Business School

Abstract

We introduce a class of models for the analysis of durations, which we call stochastic conditional duration (SCD) models. These models are based on the assumption that the durations are generated by a dynamic stochastic latent variable. The model yields a wide range of shapes of hazard functions. The estimation of the parameters is performed by quasi-maximum likelihood and using the Kalman filter. The model is applied to trade, price and volume durations of stocks traded at NYSE. We also investigate the relation between price durations, spread, trade intensity and volume.

Keywords: Duration, Hazard function, Market microstructure, Latent variable model

JEL Classification: C10, C41, G10

Suggested Citation

Bauwens, Luc and Veredas, David, The Stochastic Conditional Duration Model: A Latent Factor Model for the Analysis of Financial Durations. Journal of Econometrics, Vol. 119, No. 2, pp. 381-412, 2004, Available at SSRN: https://ssrn.com/abstract=685421

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)

David Veredas

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

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