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A Nonparametric ACD Model

Author

Listed:
  • Antonio Cosma

    () (Luxembourg School of Finance, University of Luxembourg)

  • Fausto Galli

Abstract

We carry out a nonparametric analysis of financial durations. We make use of an existing algorithm to describe nonparametrically the dynamics of the process in terms of its lagged realizations and of a latent variable, its conditional mean. The devices needed to effectively apply the algorithm to our dataset are presented. On simulated data, the nonparametric procedure yields better estimates than the ones delivered by an incorrectly specified parametric method. On a real dataset, the nonparametric analysis can convey information on the nature of the data generating process that may not be captured by the parametric specification. In this view, the nonparametric method proposed can be a valuable preliminary analysis able to suggest the choice of a “good” parametric specification, or a complement of a parametric estimation.

Suggested Citation

  • Antonio Cosma & Fausto Galli, 2006. "A Nonparametric ACD Model," LSF Research Working Paper Series 06-10, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:06-10
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    File URL: http://www.lsf.lu/eng/content/download/483/2640/file/06-10.pdf
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    Cited by:

    1. Patrick Saart & Jiti Gao & David Allen, 2015. "Semiparametric Autoregressive Conditional Duration Model: Theory and Practice," Econometric Reviews, Taylor & Francis Journals, vol. 34(6-10), pages 849-881.

    More about this item

    Keywords

    nonparametric; ACD; trade durations; local-linear.;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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