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Asymmetric ACD models: Introducing price information in ACD models

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  • BAUWENS, Luc
  • GIOT, Pierre

Abstract

This paper proposes an asymmetric autoregressive conditional duration (ACD) model, which extends the ACD model of Engle and Russell (1998). The asymmetry consists of letting the duration process depend on the state of the price process. If the price has increased, the parameters of the ACD model can differ from what they are if the price has decreased. The model is applied to the bid-ask quotes of two stocks traded on the NYSE and the evidence in favour of asymmetry is strong. Information effects (Easley and O'Hara 1992) are also empirically relevant. As the model is a transition model for the price process, it delivers `market forecasts' of where prices are heading. A trading strategy based on the model is implemented using tick-by-tick data. Copyright Springer-Verlag 2003
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Suggested Citation

  • BAUWENS, Luc & GIOT, Pierre, 2003. "Asymmetric ACD models: Introducing price information in ACD models," CORE Discussion Papers RP 1670, Universit√© catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:1670
    Note: In : Empirical Economics, 28, 709-731, 2003
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    File URL: http://dx.doi.org/10.1007/s00181-003-0155-7
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