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Econometric Analysis of Discrete-Valued Irregularly-Spaced Financial Transactions Data Using a New Autoregressive Conditional Multinomial Model

  • Russell, Jeffrey
  • Engle, Robert F

This paper proposes a new approach to modeling financial transactions data. A new model for discrete valued time series is proposed in the context of generalized linear models. Since the model is specified conditional on both the previous state, as well as the historic distribution, we call the model the Autoregressive Conditional Multinomial (ACM) model. When the data are viewed as a marked point process, the ACD model proposed in Engle and Russell (1998) allows for joint modeling of the price transition probabilities and the arrival times of the transactions. In this marked point process context, the transition probabilities vary continuously through time and are therefore duration dependent. Finally, variations of the model allow for volume and spreads to impact the conditional distribution of price changes. Impulse response studies show the long run price impact of a transaction can be very sensitive to volume but is less sensitive to the spread and transaction rate.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt00m2c5hk.

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Date of creation: 01 Apr 1998
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Handle: RePEc:cdl:ucsdec:qt00m2c5hk
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  1. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June.
  2. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
  3. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
  4. Hausman, J.A. & Lo, A.W. & MacKinlay, A.C., 1991. "An Ordered Probit Analysis of Transaction Stock Prices," Weiss Center Working Papers 26-91, Wharton School - Weiss Center for International Financial Research.
  5. McInish, Thomas H & Wood, Robert A, 1991. "Hourly Returns, Volume, Trade Size, and Number of Trades," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(4), pages 303-15, Winter.
  6. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  7. Neil Shephard, 1995. "Generalized linear autoregressions," Economics Papers 8., Economics Group, Nuffield College, University of Oxford.
  8. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  9. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
  10. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
  11. Easley, David & O'Hara, Maureen, 1992. " Time and the Process of Security Price Adjustment," Journal of Finance, American Finance Association, vol. 47(2), pages 576-605, June.
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