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The dynamic mixed hitting-time model for multiple transaction prices and times

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  • Renault, Eric
  • van der Heijden, Thijs
  • Werker, Bas J.M.

Abstract

We propose a structural model for durations between events and (a vector of) associated marks, using a multivariate Brownian motion. Successive passage times of one latent Brownian component relative to random boundaries define durations. The other, correlated, Brownian components generate the marks. Our model embeds the class of stochastic conditional (SCD) and autoregressive conditional (ACD) duration models, which impose testable restrictions on the relation between the conditional expectation and conditional volatility of durations. We strongly reject the SCD and ACD specifications for both a very liquid and less liquid NYSE-traded stock, and characterize causality relations between volatilities and durations.

Suggested Citation

  • Renault, Eric & van der Heijden, Thijs & Werker, Bas J.M., 2014. "The dynamic mixed hitting-time model for multiple transaction prices and times," Journal of Econometrics, Elsevier, vol. 180(2), pages 233-250.
    • Handle: RePEc:eee:econom:v:180:y:2014:i:2:p:233-250
    DOI: 10.1016/j.jeconom.2014.01.009
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    More about this item

    Keywords

    Duration modeling; Hitting time; Trading intensity; Market microstructure;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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