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Time transformations, intraday data and volatility models

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GIOT, Pierre
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Abstract

In this paper, we focus on the trade and quote data for the IBM stock traded at the NYSE.We present two different frameworks for analyzing this dataset. First, using regularly sampled observations, we characterize the intraday volatility of the mid-point of the bid-ask quotes by estimating GARCH and EGARCH models, with intraday seasonalitybeing accounted for. We also highlight the impact of characteristics of the trade process (traded volume, number of trades and average volume per trade) on the volatility specifications. Secondly, we deal directly with the irregularly spaced data. We review two time transformations that allowa thinning of the original dataset such that new durations are defined. The newly defined price and volume durations are characterized and the performance of the Log-ACD model for modelling these durations is assessed. Moreover, price durations allowan easy computation of intraday volatility and this method compares favorablyto ARCH estimations.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999044.

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Date of creation: 01 Jul 1999
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Handle: RePEc:cor:louvco:1999044

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Related research
Keywords: Intraday data; trades and quotes; intraday volatility; market liquidity.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lamoureux, Christopher G & Lastrapes, William D, 1990. " Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-29, March. [Downloadable!] (restricted)
  2. Robert F. Engle & Asger Lunde, 1998. "Trades and Quotes: A Bivariate Point Process," University of California at San Diego, Economics Working Paper Series 98-07, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  3. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June. [Downloadable!] (restricted)
  4. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March. [Downloadable!] (restricted)
  5. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
  6. BAUWENS, Luc & GIOT, Pierre, 1998. "Asymmetric ACD models: introducing price information in ACD models with a two state transition model," CORE Discussion Papers 1998044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  7. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(4), pages 631-51. [Downloadable!] (restricted)
  8. Brock, William A. & Kleidon, Allan W., 1992. "Periodic market closure and trading volume : A model of intraday bids and asks," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 451-489. [Downloadable!] (restricted)
  9. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
  10. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September. [Downloadable!] (restricted)
  11. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  12. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 73-114, June. [Downloadable!] (restricted)
  13. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March. [Downloadable!] (restricted)
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  14. Glosten, Lawrence R. & Harris, Lawrence E., 1988. "Estimating the components of the bid/ask spread," Journal of Financial Economics, Elsevier, vol. 21(1), pages 123-142, May. [Downloadable!] (restricted)
  15. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June. [Downloadable!] (restricted)
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  16. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  17. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June. [Downloadable!] (restricted)
  18. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  19. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December. [Downloadable!] (restricted)
  20. Bollerslev, Tim & Domowitz, Ian, 1993. " Trading Patterns and Prices in the Interbank Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 48(4), pages 1421-43, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fernandes, Marcelo & Grammig, Joachim, 2002. "A Family of Autoregressive Conditional Duration Models," Economics Working Papers (Ensaios Economicos da EPGE) 440, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  2. Matos, João Manuel Gonçalves Amaro de & Fernandes, Marcelo, 2001. "Testing The Markov Property with Ultra High Frequency Financial Data," Economics Working Papers (Ensaios Economicos da EPGE) 414, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  3. Takayuki Morimoto, 2004. "Estimating and forecasting instantaneous volatility through a duration model : An assessment based on VaR," Econometric Society 2004 Far Eastern Meetings 592, Econometric Society. [Downloadable!]
  4. Filip Žikeš & Vít Bubák, 2006. "Trading Intensity and Intraday Volatility on the Prague Stock Exchange: Evidence from an Autoregressive Conditional Duration Model (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(5-6), pages 223-245, May. [Downloadable!]
  5. GIOT, Pierre, 2000. "Intraday value-at-risk," CORE Discussion Papers 2000045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  6. Fernandes, Marcelo & Grammig, Joachim, 2003. "Nonparametric specification tests for conditional duration models," Economics Working Papers (Ensaios Economicos da EPGE) 502, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  7. Luc Bauwens & Pierre Giot & Joachim Grammig & David Veredas, 2000. "A Comparison of Financial Duration Models via Density Forecasts," Econometric Society World Congress 2000 Contributed Papers 0810, Econometric Society. [Downloadable!]
    Other versions:
  8. DOLADO , Juan J. & RODRIGUEZ-POO, Juan & VEREDAS, David, 2004. "Testing weak exogeneity in the exponential family : an application to financial point processes," CORE Discussion Papers 2004049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  9. Pierre Giot & Joachim Grammig, 2006. "How large is liquidity risk in an automated auction market?," Empirical Economics, Springer, vol. 30(4), pages 867-887, January. [Downloadable!] (restricted)
    Other versions:
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