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

Author

Listed:
  • Fei Chen

    (Huazhong University of Science and Technology)

  • Francis X. Diebold

    (Department of Economics, University of Pennsylvania)

  • Frank Schorfheide

    (Department of Economics, University of Pennsylvania)

Abstract

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," PIER Working Paper Archive 12-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:12-020
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    More about this item

    Keywords

    High-frequency trading data; point process; long memory; time deformation; scaling law; self-similarity; regime-switching model; market microstructure; liquidity;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G1 - Financial Economics - - General Financial Markets

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