A Comparison of Financial Duration Models Via Density Forecast

37 Pages Posted: 9 Sep 2005

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Joachim Grammig

Eberhard Karls Universität Tübingen; Centre for Financial Research (CfR); Center for Financial Studies (CfS)

David Veredas

Vlerick Business School

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Abstract

Using density forecast evaluation techniques we compare the predictive performance of econometric specifications that have been developed for modeling duration processes in intra-day financial markets. The model portfolio encompasses various variants of the Autoregressive Conditional Duration (ACD) model and recently proposed dynamic factor models. The evaluation is conducted on time series of trade, price and volume durations computed from transaction data of NYSE listed stocks. The results show that simpler approaches perform at least as well as more complex methods. With respect to modeling trade duration processes, standard ACD models successfully account for duration dynamics whilst none of the models provides an acceptable specification for the conditional duration distribution. We find that the Logarithmic ACD, if based on a flexible innovation distribution, provides a quite robust and useful framework for the modeling of price and volume duration processes.

Keywords: Duration processes, transactions data, intra-day financial markets, density forecast evaluation

JEL Classification: C41, C52, C53, G14

Suggested Citation

Bauwens, Luc and Grammig, Joachim and Veredas, David and Giot, Pierre, A Comparison of Financial Duration Models Via Density Forecast. International Journal of Forecasting, Vol. 20, pp. 589-604, Available at SSRN: https://ssrn.com/abstract=795308

Luc Bauwens

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)

Joachim Grammig

Eberhard Karls Universität Tübingen ( email )

Mohlstrasse 36
D-72074 Tübingen, 72074
Germany

HOME PAGE: http://www.uni-tuebingen.de/uni/wwo/Grammig/grammigeng.html

Centre for Financial Research (CfR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Center for Financial Studies (CfS) ( email )

Taunusanlage 6
Frankfurt/Germany, D-60329
Germany

David Veredas (Contact Author)

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

Pierre Giot

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

Rempart de la Vierge 8
B-5000 Namur
Belgium

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