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Modeling Dynamic Diurnal Patterns in High-Frequency Financial Data

  • Ito, Ryoko
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    We introduce the spline-DCS model with a dynamic cubic spline as a way of capturing periodic behavior in financial data that evolves over time. Our empirical application provides evidence for changing diurnal patterns in the high-frequency financial data we study. We illustrate that this generalization can lead to an improvement in the quality of the fit of the model to the empirical distribution of data, especially in the tail region, for an extended out-of-sample period. Moreover, it can lead to a substantial improvement in predicting intra-day volume proportions, which is useful for Volume-Weighted Average Price stratategies. Our novel approach gives new insights into regular trading behavior and how it responds to changing market conditions.

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    File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1315.pdf
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    Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1315.

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    Date of creation: 04 Jun 2013
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    Handle: RePEc:cam:camdae:1315
    Note: ri239
    Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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    2. Hautsch, Nikolaus & Malec, Peter & Schienle, Melanie, 2011. "Capturing the zero: A new class of zero-augmented distributions and multiplicative error processes," CFS Working Paper Series 2011/25, Center for Financial Studies (CFS).
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    14. Boes, M.J. & Drost, F.C. & Werker, B.J.M., 2005. "The Impact of Overnight Periods on Option Pricing," Discussion Paper 2005-1, Tilburg University, Center for Economic Research.
    15. Boes, M.J. & Drost, F.C. & Werker, B.J.M., 2007. "The impact of overnight periods on option pricing," Other publications TiSEM fc062462-2359-45ac-8826-d, Tilburg University, School of Economics and Management.
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