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Duration, volume and volatility impact of trades

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  • Manganelli, Simone

Abstract

This paper develops a new econometric framework to model duration, volume and volatility simultaneously. We obtain an econometric reduced form that incorporates causal and feedback effects among these variables. We construct impulse-response functions that show how the system reacts to a perturbation of its long-run equilibrium. The methodology is applied to two groups of stocks from NYSE, classified according to their trade intensity. We document how the two groups of stocks are characterised by different dynamics: 1) volume is more persistent for frequently traded stocks than for the infrequently traded ones; 2) the well-known positive relationship between volume and price variability holds only for the frequently traded stocks at the ultra high frequency level; 3) the trade arrival process can be considered exogenous only for the not frequently traded stocks; 4) the more frequently traded the stock, the faster the market returns to its full information equilibrium after a perturbation JEL Classification: C32, G14

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0125.

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Date of creation: Feb 2002
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Handle: RePEc:ecb:ecbwps:20020125

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Related research

Keywords: Autoregressive Conditional Duration; Empirical Market; G14; GARCH; JEL classification codes C32; Ultra High Frequency Data;

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