Dynamics of trade-by-trade price movements: decomposition and models
AbstractIn this paper we introduce a decomposition of the joint distribution of price changes of assets recorded trade-by-trade. Our decomposition means that we can model the dynamics of price changes using quite simple and interpretable models which are easily extended in a great number of directions, including using durations and volume as explanatory variables. Thus we provide an econometric basis for empirical work on market microstructure using time series of transactions data. We use maximum likelihood estimation and testing methods to assess the fit of the model to a year of IBM stock price data taken from the New York Stock Exchange.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2002-FE-04.
Date of creation: 01 Jan 2002
Date of revision:
Activity; autologistic; conditional independence; decomposition; directions; durations; forecasting; GLARMA; logarithmic distribution; prediction decomposition; size; transactions data;
Other versions of this item:
- Tina Hviid Rydberg & Neil Shephard, 2003. "Dynamics of Trade-by-Trade Price Movements: Decomposition and Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 1(1), pages 2-25.
- Tina Hviid Rydberg & Neil Shephard, 2002. "Dynamics of trade-by-trade price movements: decomposition and models," Economics Papers 2002-W1, Economics Group, Nuffield College, University of Oxford.
- Tina Hviid Rydberg & Neil Shephard, 2002. "Dynamics of trade-by-trade price movements: decomposition and models," OFRC Working Papers Series 2002fe04, Oxford Financial Research Centre.
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- Ghysels Eric & Jasiak Joanna, 1998. "GARCH for Irregularly Spaced Financial Data: The ACD-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 1-19, January.
- Manganelli, Simone, 2005.
"Duration, volume and volatility impact of trades,"
Journal of Financial Markets,
Elsevier, vol. 8(4), pages 377-399, November.
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