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Duration and Order Type Clusters

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Author Info
Wing Lon NG
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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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.;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis

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References listed on IDEAS
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  1. Thierry Foucault & Ohad Kadan & Eugene Kandel, 2003. "Limit Order Book as a Market for Liquidity," Discussion Paper Series dp321, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
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  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. [Downloadable!] (restricted)
  3. 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). [Downloadable!]
  4. 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:
  5. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
    Other versions:
  6. 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)
    Other versions:
  7. Alfonso Dufour & Robert F Engle, 2000. "The ACD Model: Predictability of the Time Between Concecutive Trades," ICMA Centre Discussion Papers in Finance icma-dp2000-05, Henley Business School, Reading University. [Downloadable!]
  8. 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!]
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  9. 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. [Downloadable!]
  10. 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!]
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  11. Giovanni De Luca & Giampiero M. Gallo, 2004. "Mixture Processes for Financial Intradaily Durations," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 8(2). [Downloadable!]
  12. Luc Bauwens & Nikolaus Hautsch, 2006. "Stochastic Conditional Intensity Processes," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 450-493. [Downloadable!] (restricted)
  13. 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. [Downloadable!]
  14. Nikolaus Hautsch, 2006. "Testing the Conditional Mean Function of Autoregressive Conditional Duration Models," FRU Working Papers 2006/06, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
  15. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January. [Downloadable!] (restricted)
  16. 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. [Downloadable!]
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