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The ACD Model: Predictability of the Time Between Concecutive Trades

  • Alfonso Dufour

    ()

    (ICMA Centre, University of Reading)

  • Robert F Engle

    (Department of Economics - University of California)

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.

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Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2000-05.

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Length: 59 pages
Date of creation: May 2000
Date of revision:
Handle: RePEc:rdg:icmadp:icma-dp2000-05
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