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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 Far Eastern Meetings with number 730.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:730

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Related research
Keywords: Ultra high frequency transaction data limit order book order aggressiveness market microstructure ACD model dynamic logit model bivariate point process survival analysis.

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

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  1. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
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  2. 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:
  3. Giovanni De Luca & Giampiero Gallo, 2004. "Mixture Processes for Financial Intradaily Durations," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 8(2), pages 1223-1223. [Downloadable!] (restricted)
  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. [Downloadable!]
  5. 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!]
    Other versions:
  6. 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)
  7. Bauwens, L. & Giot, P. & Grammig, J. & Veredas, D., 2000. "A Comparison of Financial Duration Models Via Density Forecasts," Papers 0060, Catholique de Louvain - Center for Operations Research and Economics.
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  8. Marcelo Fernandes & Joachim Grammig, 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:
  9. 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, School of Business, Reading University. [Downloadable!]
  10. Luc Bauwens & Nikolaus Hautsch, 2006. "Stochastic Conditional Intensity Processes," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 450-493. [Downloadable!] (restricted)
  11. 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!]
  12. 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!]
  13. Ranaldo, Angelo, 2004. "Order aggressiveness in limit order book markets," Journal of Financial Markets, Elsevier, vol. 7(1), pages 53-74, January. [Downloadable!] (restricted)
  14. 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!]
  15. Eric Ghysels & Joanna Jasiak, 1998. "GARCH for Irregularly Spaced Financial Data: The ACD-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 2(4), pages 133-149. [Downloadable!] (restricted)
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