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The ACD Model: Predictability of the Time Between Concecutive Trades

Author

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  • Alfonso Dufour

    () (ICMA Centre, University of Reading)

  • Robert F Engle

    (Department of Economics - University of California)

Abstract

Forecasting ability of several parameterizations of ACD models are compared to benchmark linear autoregressions for inter-trade durations. The estimation of parametric ACD models requires both the choice of a conditional density for durations and the specification of a functional form for the conditional mean duration. Our results provide guidance for choosing among different parameterizations and for developing better forecasting models to predict one-step-ahead, multi-step-ahead, and the whole density of time durations. For evaluating density forecasts, we propose a new constructive test, which is based on the series of probability integral transforms. The choice of the conditional distribution for inter-trade durations does not seem to affect the out-of sample performances of the ACD at short, as well as longer, horizons. Yet, this choice becomes critical when forecasting the density.

Suggested Citation

  • Alfonso Dufour & Robert F Engle, 2000. "The ACD Model: Predictability of the Time Between Concecutive Trades," ICMA Centre Discussion Papers in Finance icma-dp2000-05, Henley Business School, Reading University.
  • Handle: RePEc:rdg:icmadp:icma-dp2000-05
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    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2000-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bhatti, Chad R., 2009. "On the interday homogeneity in the intraday rate of trading," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(7), pages 2250-2257.
    2. Anthony Hall & Nikolaus Hautsch, 2006. "Order aggressiveness and order book dynamics," Empirical Economics, Springer, vol. 30(4), pages 973-1005, January.
    3. James D. Hamilton & Oscar Jorda, 2002. "A Model of the Federal Funds Rate Target," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1135-1167, October.
    4. Christensen, T.M. & Hurn, A.S. & Lindsay, K.A., 2012. "Forecasting spikes in electricity prices," International Journal of Forecasting, Elsevier, vol. 28(2), pages 400-411.
    5. Zhang Zongxin & Zhang Xiao, 2011. "Trading duration, mutual funds behavior and stock market shock: Based on ACD model to mine mutual funds investment behavior," China Finance Review International, Emerald Group Publishing, vol. 1(3), pages 220-240, July.
    6. Fernandes, Marcelo & Grammig, Joachim, 2006. "A family of autoregressive conditional duration models," Journal of Econometrics, Elsevier, vol. 130(1), pages 1-23, January.
    7. Maria Pacurar, 2008. "Autoregressive Conditional Duration Models In Finance: A Survey Of The Theoretical And Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 22(4), pages 711-751, September.
    8. De Luca Giovanni & Gallo Giampiero M., 2004. "Mixture Processes for Financial Intradaily Durations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(2), pages 1-20, May.
    9. Jan Beran & Yuanhua Feng & Sucharita Ghosh, 2015. "Modelling long-range dependence and trends in duration series: an approach based on EFARIMA and ESEMIFAR models," Statistical Papers, Springer, vol. 56(2), pages 431-451, May.
    10. Rodrigo Herrera & Bernhard Schipp, 2011. "Extreme value models in a conditional duration intensity framework," SFB 649 Discussion Papers SFB649DP2011-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    11. Allen, David & Ng, K.H. & Peiris, Shelton, 2013. "The efficient modelling of high frequency transaction data: A new application of estimating functions in financial economics," Economics Letters, Elsevier, vol. 120(1), pages 117-122.
    12. Roman Huptas, 2014. "Bayesian Estimation and Prediction for ACD Models in the Analysis of Trade Durations from the Polish Stock Market," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 6(4), pages 237-273, December.
    13. Wing Lon Ng, 2010. "Dynamic Order Submission And Herding Behavior In Electronic Trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(1), pages 27-43.
    14. Ping-Hung Chou & Pei-Shan Wu & Teng-Tsai Tu, 2014. "The Impact of Trader Behavior on Options Price Volatility," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(4), pages 503-516, April.
    15. Roman Huptas, 2016. "The UHF-GARCH-Type Model in the Analysis of Intraday Volatility and Price Durations – the Bayesian Approach," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 8(1), pages 1-20, March.

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