Time-Varying Mixing Weights in Mixture Autoregressive Conditional Duration Models

Gallo, Giampiero M.; De Luca, Giovanni

doi:10.2139/ssrn.892023

Time-Varying Mixing Weights in Mixture Autoregressive Conditional Duration Models

Universita' di Firenze Working Paper No. 2005-11

29 Pages Posted: 29 Mar 2006

See all articles by Giampiero M. Gallo

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Giovanni De Luca

Universita' di Napoli Parthenope

Date Written: October 25, 2005

Abstract

Financial market price formation and exchange activity can be investigated by means of ultra-high frequency data. In this paper we investigate an extension of the Autoregressive Conditional Duration (ACD) model of Engle and Russell (1998) by adopting a mixture of distribution approach with time varying weights. Empirical estimation of the Mixture ACD model shows that the limitations of the standard base model and its inadequacy of modelling the behavior in the tail of the distribution are suitably solved by our model.

When the weights are made dependent on some market activity data, the model lends itself to some structural interpretation related to price formation and information diffusion in the market.

Keywords: Market microstructure, ACD models, Exponential mixtures, Price durations

JEL Classification: C14, c23, c42

Suggested Citation: Suggested Citation

Gallo, Giampiero M. and De Luca, Giovanni, Time-Varying Mixing Weights in Mixture Autoregressive Conditional Duration Models (October 25, 2005). Universita' di Firenze Working Paper No. 2005-11, Available at SSRN: https://ssrn.com/abstract=892023 or http://dx.doi.org/10.2139/ssrn.892023