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A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities


  • Fei Chen
  • Francis X. Diebold
  • Frank Schorfheide


We propose and illustrate a Markov-switching multi-fractal duration (MSMD) model for analysis of inter-trade durations in financial markets. We establish several of its key properties with emphasis on high persistence (indeed long memory). Empirical exploration suggests MSMD's superiority relative to leading competitors.

Suggested Citation

  • Fei Chen & Francis X. Diebold & Frank Schorfheide, 2012. "A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities," NBER Working Papers 18078, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18078
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    1. repec:kap:compec:v:51:y:2018:i:2:d:10.1007_s10614-017-9692-6 is not listed on IDEAS
    2. Aldrich, Eric M. & Heckenbach, Indra & Laughlin, Gregory, 2016. "A compound duration model for high-frequency asset returns," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 105-128.
    3. repec:eee:eneeco:v:63:y:2017:i:c:p:129-143 is not listed on IDEAS
    4. Wen Cao & Clifford Hurvich & Philippe Soulier, 2012. "Drift in Transaction-Level Asset Price Models," Working Papers hal-00756372, HAL.
    5. Segnon, Mawuli & Lux, Thomas, 2013. "Multifractal models in finance: Their origin, properties, and applications," Kiel Working Papers 1860, Kiel Institute for the World Economy (IfW).
    6. Kuosmanen, Petri & Nabulsi, Nasib & Vataja, Juuso, 2015. "Financial variables and economic activity in the Nordic countries," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 368-379.
    7. Filip Žikeš & Jozef Baruník & Nikhil Shenai, 2017. "Modeling and forecasting persistent financial durations," Econometric Reviews, Taylor & Francis Journals, vol. 36(10), pages 1081-1110, November.
    8. repec:bla:jtsera:v:38:y:2017:i:5:p:769-790 is not listed on IDEAS
    9. de Bruijn, L.P. & Franses, Ph.H.B.F., 2015. "Stochastic levels and duration dependence in US unemployment," Econometric Institute Research Papers EI2015-20, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    10. Lux, Thomas, 2013. "Exact solutions for the transient densities of continuous-time Markov switching models: With an application to the poisson multifractal model," Kiel Working Papers 1871, Kiel Institute for the World Economy (IfW).
    11. Suh, Jong Hwan, 2015. "Forecasting the daily outbreak of topic-level political risk from social media using hidden Markov model-based techniques," Technological Forecasting and Social Change, Elsevier, vol. 94(C), pages 115-132.
    12. Eric M. Aldrich & Indra Heckenbach & Gregory Laughlin, 2014. "The Random Walk of High Frequency Trading," Papers 1408.3650,, revised Aug 2014.
    13. Farzad Alavi Fard, 2014. "Optimal Bid-Ask Spread in Limit-Order Books under Regime Switching Framework," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 33-48, November.
    14. Renault, Eric & van der Heijden, Thijs & Werker, Bas J.M., 2014. "The dynamic mixed hitting-time model for multiple transaction prices and times," Journal of Econometrics, Elsevier, vol. 180(2), pages 233-250.
    15. Kang, Bo Soo & Ryu, Doojin & Ryu, Doowon, 2014. "Phase-shifting behaviour revisited: An alternative measure," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 167-173.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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