Econometric analysis of financial trade processes by discrete mixture duration models. (English) Zbl 1162.91525
Summary: We propose a new framework for modelling the time dependence in financial duration processes. The pioneering Autoregressive Conditional Duration (ACD) model introduced by R. F. Engle and J. R. Russell [Econometrica 66, No. 5, 1127–1162 (1998; Zbl 1055.62571)] will be extended in a way that the duration process is clouded by an unobservable stochastic process. The idea will be put into practice by the Discrete Mixture ACD framework which provides us with a flexible methodology. It will be 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.
MSC:
| 91B84 | Economic time series analysis |
| 62P05 | Applications of statistics to actuarial sciences and financial mathematics |
| 62M10 | Time series, auto-correlation, regression, etc. in statistics (GARCH) |
Citations:
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