Econometric Analysis of Financial Trade Processes by Discrete Mixture Duration Models

38 Pages Posted: 5 Aug 2005

See all articles by Reinhard Hujer

Reinhard Hujer

University of Frankfurt; IZA Institute of Labor Economics

Sandra Vuletic

Johann Wolfgang Goethe University - University of Frankfurt

Date Written: July 2005

Abstract

We propose a new framework for modelling the time dependence in duration processes being in force on financial markets. The pioneering ACD model introduced by Engle and Russell (1998) will be extended in a manner that the duration process will be accompanied by an unobservable stochastic process. The Discrete Mixture ACD framework provides us with a general methodology which puts the idea into practice. It is established by introducing a discrete-valued latent regime variable which can be justified in the light of recent market microstructure theories. The empirical application demonstrates its ability to capture specific characteristics of intraday transaction durations while alternative approaches fail.

Keywords: Mixture models, duration models, financial transaction data, market microstructure

JEL Classification: C41, C22, C25, C51, G14

Suggested Citation

Hujer, Reinhard and Vuletic, Sandra, Econometric Analysis of Financial Trade Processes by Discrete Mixture Duration Models (July 2005). Available at SSRN: https://ssrn.com/abstract=766664 or http://dx.doi.org/10.2139/ssrn.766664

Reinhard Hujer

University of Frankfurt ( email )

Institute for Statistics and Econometrics
60054 Frankfurt
Germany
+49 798 23673 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Sandra Vuletic (Contact Author)

Johann Wolfgang Goethe University - University of Frankfurt ( email )

Institute for Statistics and Econometrics
Mertonstr. 17
60054 Frankfurt
Germany
+49 69 798 22893 (Phone)
+49 69 798 23673 (Fax)

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