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Dynamics of Trade-by-Trade Price Movements: Decomposition and Models

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  • Tina Hviid Rydberg
  • Neil Shephard

Abstract

In this article we introduce a decomposition of the joint distribution of price changes of assets recorded trade-by-trade. Our decomposition means that we can model the dynamics of price changes using quite simple and interpretable models which are easily extended in a great number of directions, including using durations and volume as explanatory variables. Thus we provide an econometric basis for empirical work on market microstructure using time series of transaction data. We use maximum likelihood estimation and testing methods to assess the fit of the model to one year of IBM stock price data taken from the New York Stock Exchange. , .

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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 1 (2003)
Issue (Month): 1 ()
Pages: 2-25

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Handle: RePEc:oup:jfinec:v:1:y:2003:i:1:p:2-25

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  1. Manganelli, Simone, 2002. "Duration, volume and volatility impact of trades," Working Paper Series 0125, European Central Bank.
  2. Ghysels Eric & Jasiak Joanna, 1998. "GARCH for Irregularly Spaced Financial Data: The ACD-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 1-19, January.
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