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Duration and Order Type Clusters

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  • Wing Lon NG
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    Abstract

    This paper introduces a new bivariate autoregressive conditional framework (ACD×ACL) for modelling the arrival process of buy and sell orders in a limit order book. The model contains two dynamic components to describe the observed clustering of durations and order types: a duration process to capture the time structure, combined with a new "Autoregressive Conditional Logit" model in order to display the traders' order choice. Both processes are adapted to a common natural filtration and modelled simultaneously. It can be shown that the state of the order book as well as the success and the speed of the matching process have a significant influence on the traders' decisions when and on which side of the market to submit orders and, thus, affect the market's liquidity

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    File URL: http://repec.org/esAUSM04/up.22684.1077879587.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 272.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:ausm04:272

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    Related research

    Keywords: Ultra high frequency transaction data; limit order book; market microstructure; ACD model; dynamic logit model; bivariate point process.;

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    1. Foucault, Thierry & Kadan, Ohad & Kandel, Eugene, 2001. "Limit Order Book as a Market for Liquidity," CEPR Discussion Papers 2889, C.E.P.R. Discussion Papers.
    2. Luc Bauwens & Pierre Giot, 2003. "Asymmetric ACD models: Introducing price information in ACD models," Empirical Economics, Springer, vol. 28(4), pages 709-731, November.
    3. 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).
    4. Nikolaus Hautsch, 2002. "Modelling Intraday Trading Activity Using Box-Cox-ACD Models," CoFE Discussion Paper 02-05, Center of Finance and Econometrics, University of Konstanz.
    5. 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.
    6. Zhang, Michael Yuanjie & Russell, Jeffrey R. & Tsay, Ruey S., 2001. "A nonlinear autoregressive conditional duration model with applications to financial transaction data," Journal of Econometrics, Elsevier, vol. 104(1), pages 179-207, August.
    7. Nikolaus Hautsch & Winfried Pohlmeier, 2001. "Econometric Analysis of Financial Transaction Data: Pitfalls and Opportunities," CoFE Discussion Paper 01-05, Center of Finance and Econometrics, University of Konstanz.
    8. Luc Bauwens & Nikolaus Hautsch, 2006. "Stochastic Conditional Intensity Processes," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(3), pages 450-493.
    9. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January.
    10. Winfried Pohlmeier & Roman Liesenfeld, 2003. "A Dynamic Integer Count Data Model for Financial Transaction Prices," CoFE Discussion Paper 03-03, Center of Finance and Econometrics, University of Konstanz.
    11. BAUWENS, Luc & GALLI, Fausto & GIOT, Pierre, 2003. "The moments of Log-ACD models," CORE Discussion Papers 2003011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Eric Ghysels & Joanna Jasiak, 1998. "GARCH for Irregularly Spaced Financial Data: The ACD-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 4.
    13. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
    14. 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.
    15. Giovanni De Luca & Giampiero M. Gallo, 2004. "Mixture Processes for Financial Intradaily Durations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(2), pages 8.
    16. Joachim Vogel, 2003. "The Family," Social Indicators Research, Springer, vol. 64(3), pages 393-435, December.
    17. Rombouts, Jeroen V. K. & Bauwens, Luc, 2004. "Econometrics," Papers 2004,33, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
    18. Eric Ghysels & Joanna Jasiak, 1997. "GARCH for Irregularly Spaced Data: The ACD-GARCH Model," CIRANO Working Papers 97s-06, CIRANO.
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