Analyzing the Time between Trades with a Gamma Compounded Hazard Model. An Application to LIFFE Bund Future Transactions
AbstractThis paper investigates the time between transactions on financial markets. It is assumed that the interval between transactions is a random variable and the relationship between the probability to observe a transaction at each instant of time and the type of the previous trade is investigated. To estimate these effects, a semiparametric proportional hazard model is used which is based on approaches proposed by Han and Hausman (1990) and Meyer (1990). Considering grouped durations the log-likelihood is formed by using differences in the survivor function. Hence, the model corresponds to an ordered response approach whereby the baseline hazard is estimated simultaneously with the coefficients of the covariates and is calculated by the thresholds. Clustering of the durations is taken into account by including lagged durations. A test is proposed to check for serial correlation in the errors based on the concept of generalized residuals along the lines of the work of Gourieroux, Monfort and Trognon (1987). Unobservable heterogeneity is implemented parametrically by a gamma distributed random variable entering the hazard function. It is shown that the resulting compounded model follows a BurrII form. In an empirical analysis high frequency intraday transaction data from the London International Financial Futures and Options Exchange (LIFFE) is investigated.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 9904002.
Length: 32 pages
Date of creation: 14 Apr 1999
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Other versions of this item:
- Nikolaus Hautsch, 1999. "Analyzing the Time between Trades with a Gamma Compounded Hazard Model. An Application to LIFFE Bund Future Transactions," CoFE Discussion Paper 99-03, Center of Finance and Econometrics, University of Konstanz.
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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