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Panel Intensity Models with Latent Factors: An Application to the Trading Dynamics on the Foreign Exchange Market¤

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Author Info
Ingmar Nolte () (University of Konstanz)
Valeri Voev () (University of Konstanz)

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Abstract

We develop a panel intensity model, with a time varying latent factor, which captures the influence of unobserved time effects and allows for correlation across individuals. The model is designed to analyze individual trading behavior on the basis of trading activity datasets, which are characterized by four dimensions: an irregularly-spaced time scale, trading activity types, trading instruments and investors. Our approach extends the stochastic conditional intensity model of Bauwens & Hautsch (2006) to panel duration data. We show how to estimate the model parameters by a simulated maximum likelihood technique adopting the efficient importance sampling approach of Richard & Zhang (2005). We provide an application to a trading activity dataset from an internet trading platform in the foreign exchange market and we find support for the presence of behavioral biases and discuss implications for portfolio theory.

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Publisher Info
Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 07-02.

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Length: 30 pages
Date of creation: 28 Feb 2007
Date of revision:
Handle: RePEc:knz:cofedp:0702

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Postal: Fach D 147, D-78457 Konstanz
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Web page: http://cofe.uni-konstanz.de
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For technical questions regarding this item, or to correct its listing, contact: (Ingmar Nolte).

Related research
Keywords: Trading Activity Datasets; Panel Intensity Models; Latent Factors; Efficient Importance Sampling; Behavioral Finance;

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
F31 - International Economics - - International Finance - - - Foreign Exchange
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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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. Ning Zhu & Ravi Dhar, 2002. "Up Close and Personal: An Individual Level Analysis of the Disposition Effect," Yale School of Management Working Papers ysm269, Yale School of Management. [Downloadable!]
  2. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August. [Downloadable!] (restricted)
  3. repec:att:wimass:199520 is not listed on IDEAS
  4. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July. [Downloadable!] (restricted)
  5. Liesenfeld, Roman & Richard, Jean-Francois, 2003. "Univariate and multivariate stochastic volatility models: estimation and diagnostics," Journal of Empirical Finance, Elsevier, vol. 10(4), pages 505-531, September. [Downloadable!] (restricted)
  6. Ingmar Nolte & Sandra Lechner, 2007. "Customer Trading in the Foreign Exchange Market: Empirical Evidence from an Internet Trading Platform," CoFE Discussion Paper 07-03, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
  7. Luc Bauwens & Nikolaus Hautsch, 2006. "Stochastic Conditional Intensity Processes," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 450-493. [Downloadable!] (restricted)
  8. Asger Lunde & Allan Timmermann, 2005. "Completion time structures of stock price movements," Annals of Finance, Springer, vol. 1(3), pages 293-326, 08. [Downloadable!] (restricted)
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