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The logarithmic ACD model: an application to market microstructure and NASDAQ

Author

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  • BAUWENS, LUC

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • GIOT, Pierre

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper introduces the logarithmic autoregressive conditional duration model (Log-ACD model). The logarithmic version allows for more flexibility than the ACD model of Engle and Russel (1995), when additional variables are included in the model. We apply the Log-ACD model to bid/ask prices relative to securities listed on the NASDAQ and investigate the way market makers revise their beliefs on these bid and ask prices. The updating behavior of the market makers is closely linked to the evolution of the liquidity of the market over the trading day.

Suggested Citation

  • BAUWENS, LUC & GIOT, Pierre, 1997. "The logarithmic ACD model: an application to market microstructure and NASDAQ," LIDAM Discussion Papers CORE 1997089, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997089
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp1997.html
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    Citations

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    Cited by:

    1. Gerhard, Frank & Hautsch, Nikolaus, 2000. "Determinants of Inter-Trade Durations and Hazard Rates Using Proportional Hazard ARMA Model," CoFE Discussion Papers 00/20, University of Konstanz, Center of Finance and Econometrics (CoFE).
    2. Hujer Reinhard & Grammig Joachim & Kokot Stefan, 2000. "Time Varying Trade Intensities and the Deutsche Telekom IPO / Zeitvariable Handelsintensitaten und die Deutsche Telekom IPO," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 220(6), pages 689-714, December.

    More about this item

    Keywords

    Duration; High frequency data; Liquidity; Market microstructure; NASDAQ;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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