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Stochastic Conditional Duration Model with Intraday Seasonality and Limit Order Book Information

Author

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  • Tomoki Toyabe

    (Graduate School of Economics, Keio University, Tokyo 108-8345, Japan)

  • Teruo Nakatsuma

    (Faculty of Economics, Keio University, Tokyo 108-8345, Japan)

Abstract

It is a widely known fact that the intraday seasonality of trading intervals for financial transactions such as stocks is short at the beginning of business hours and long in the middle of the day. In this paper, we extend the stochastic conditional duration (SCD) model to capture the pattern of intraday trading intervals and propose a new Markov chain Monte Carlo method to estimate this intraday seasonality simultaneously. To efficiently generate the Monte Carlo sample, we used a hybrid of the Gibbs/Metropolis–Hastings (MH) sampling scheme and also applied generalized Gibbs sampling. In addition to capturing this intraday seasonality, this paper also considers limit order book information. Three-day tick data for three stocks obtained from Nikkei NEEDS are used for estimation, and model selection is performed on smooth parameters, Weibull distribution and Gamma distribution. The typical intraday regularity of frequent trading immediately after the start of trading is confirmed, and the spread of the limit order book information is also found to affect the trading time interval.

Suggested Citation

  • Tomoki Toyabe & Teruo Nakatsuma, 2022. "Stochastic Conditional Duration Model with Intraday Seasonality and Limit Order Book Information," JRFM, MDPI, vol. 15(10), pages 1-25, October.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:10:p:470-:d:944931
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    References listed on IDEAS

    as
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