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Modelling Security Market Events in Continuous Time: Intensity based, Multivariate Point Process Models

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Author Info
Clive Bowsher () (Nuffield College, Oxford University, Oxford, England)

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Abstract

A continuous time econometric modelling framework for multivariate market event (or 'transactions') data is developed in which the model is specified via the vector stochastic intensity. This has the advantage that the conditioning sigma-field is updated continuously in time as new information arrives. We introduce the class of generalised Hawkes models which allow the estimation of the dependence of the intensity on the events of previous trading days. Analytic likelihoods are available and we show how to construct diagnostic tests based on the transformation of non-Poisson processes into standard Poisson processes using random changes of time scale. A proof of the validity of the diagnostic testing procedures is given that imposes only a very weak condition on the point process model, thus establishing their widespread applicability. A continuous time bivariate point process model of the timing of trades and mid-quote changes is presented for a NYSE stock and the empirical findings are related to the theoretical and empirical market microstructure literature.

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Publisher Info
Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2002-W22.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 54 pages
Date of creation: 17 Oct 2002
Date of revision:
Handle: RePEc:nuf:econwp:0222

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Web page: http://www.nuff.ox.ac.uk/economics/

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Related research
Keywords: Point and counting processes intensity multivariate diagnostics goodness of fit specification tests change of timescale transactions data NYSE NASDAQ market microstructure

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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. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  2. Joel Hasbrouck, 1999. "Trading Fast and Slow: Security Market Events in Real Time," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-012, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  3. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
  4. Robert F. Engle & Asger Lunde, 2003. "Trades and Quotes: A Bivariate Point Process," Journal of Financial Econometrics, Oxford University Press, vol. 1(2), pages 159-188.
    Other versions:
  5. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
  6. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March. [Downloadable!] (restricted)
    Other versions:
  7. Andrews, Donald W K, 2001. "Testing When a Parameter Is on the Boundary of the Maintained Hypothesis," Econometrica, Econometric Society, vol. 69(3), pages 683-734, May.
    Other versions:
  8. 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)
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  9. Jeffrey R. Russell & Robert F. Engle, 1998. "Econometric Analysis of Discrete-Valued Irregularly-Spaced Financial Transactions Data Using a New Autoregressive Conditional Multinomial Model," University of California at San Diego, Economics Working Paper Series 98-10, Department of Economics, UC San Diego. [Downloadable!]
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  10. Anthony D. Hall & Nikolaus Hautsch, 2004. "A Continuous-Time Measurement of the Buy-Sell Pressure in a Limit Order Book Market," Research Paper Series 121, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  11. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June. [Downloadable!] (restricted)
  12. Clive Bowsher, 2002. "Modelling Security Market Events in Continuous Time: Intensity based, Multivariate Point Process Models," Economics Papers 2002-W22, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  13. Grammig, Joachim & Wellner, Marc, 2002. "Modeling the interdependence of volatility and inter-transaction duration processes," Journal of Econometrics, Elsevier, vol. 106(2), pages 369-400, February. [Downloadable!] (restricted)
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  14. Alfonso Dufour & Robert F. Engle, 2000. "Time and the Price Impact of a Trade," Journal of Finance, American Finance Association, vol. 55(6), pages 2467-2498, December. [Downloadable!] (restricted)
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  15. Jeffrey Russell & Robert Engle, 1998. "Econometric Analysis of Discrete-Valued Irregularly-Spaced Financial Transactions Data Using a New Autoregressive Conditional Multinomial Model," University of California at San Diego, Economics Working Paper Series 1998-10, Department of Economics, UC San Diego. [Downloadable!]
  16. Robert Engle, 2002. "New frontiers for arch models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 425-446. [Downloadable!]
  17. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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. Nikolaus Hautsch, 2007. "Capturing Common Components in High-Frequency Financial Time Series: A Multivariate Stochastic Multiplicative Error Model," CFS Working Paper Series 2007/25, Center for Financial Studies. [Downloadable!]
    Other versions:
  2. Clive G. Bowsher, 2005. "Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models," Economics Papers 2005-W26, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  3. Anthony D. Hall & Nikolaus Hautsch, 2004. "Order Aggressiveness and Order Book Dynamics," FRU Working Papers 2005/04, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
    Other versions:
  4. Jeremy Large, 2004. "Cancellation and Uncertainty Aversion on Limit Order Books," Economics Papers 2004-W05, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  5. Anthony D. Hall & Nikolaus Hautsch, 2004. "A Continuous-Time Measurement of the Buy-Sell Pressure in a Limit Order Book Market," FRU Working Papers 2004/03, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
    Other versions:
  6. Siddhartha Chib & Michael K Pitt & Neil Shephard, 2004. "Likelihood based inference for diffusion driven models," Economics Papers 2004-W20, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  7. Klaus Keller & Gary Yohe & Michael Schlesinger, 2005. "Managing the Risks of Climate Thresholds: Uncertainties and Information Needs," Wesleyan Economics Working Papers 2005-009, Wesleyan University, Department of Economics. [Downloadable!]
  8. Clive G. Bowsher, 2003. "Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models," Economics Papers 2003-W03, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  9. Anthony Tay & Christopher Ting & Yiu Kuen Tse & Mitch Warachka, 2004. "Transaction-Data Analysis of Marked Durations and Their Implications for Market Microstructure," Working Papers 09-2004, Singapore Management University, School of Economics. [Downloadable!]
  10. Neil Shephard & Ole E. Barndorff-Nielsen, 2005. "Variation, jumps, market frictions and high frequency data in financial econometrics," Economics Series Working Papers 240, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  11. André A. Monteiro, 2008. "Parameter Driven Multi-state Duration Models: Simulated vs. Approximate Maximum Likelihood Estimation," Tinbergen Institute Discussion Papers 08-021/2, Tinbergen Institute. [Downloadable!]
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