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Bayesian Inference of Asymmetric Stochastic Conditional Duration Models

  • Zhongxian Men

    (Department of Statistics & Actuarial Science, University of Waterloo, Canada)

  • Adam W. Kolkiewicz

    (Department of Statistics & Actuarial Science, University of Waterloo, Canada)

  • Tony S. Wirjanto


    (Department of Statistics & Actuarial Science, University of Waterloo, Canada)

This paper extends stochastic conditional duration (SCD) models for financial transaction data to allow for correlation between error processes or innovations of observed duration process and latent log duration process. Novel algorithms of Markov Chain Monte Carlo (MCMC) are developed to fit the resulting SCD models under various distributional assumptions about the innovation of the measurement equation. Unlike the estimation methods commonly used to estimate the SCD models in the literature, we work with the original specification of the model, without subjecting the observation equation to a logarithmic transformation. Results of simulation studies suggest that our proposed models and corresponding estimation methodology perform quite well. We also apply an auxiliary particle filter technique to construct one-step-ahead in-sample and out-of-sample duration forecasts of the fitted models. Applications to the IBM transaction data allows comparison of our models and methods to those existing in the literature.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 28_13.

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Date of creation: May 2013
Date of revision:
Handle: RePEc:rim:rimwps:28_13
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  1. Bauwens, Luc & Veredas, David, 2004. "The stochastic conditional duration model: a latent variable model for the analysis of financial durations," Journal of Econometrics, Elsevier, vol. 119(2), pages 381-412, April.
  2. Luc, BAUWENS & Fausto Galli, 2007. "Efficient importance sampling for ML estimation of SCD models," Discussion Papers (ECON - Département des Sciences Economiques) 2007032, Université catholique de Louvain, Département des Sciences Economiques.
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  16. Dinghai Xu & John Knight & Tony S. Wirjanto, 2008. "Asymmetric Stochastic Conditional Duration Model --A Mixture of Normals Approach"," Working Papers 08007, University of Waterloo, Department of Economics.
  17. John Knight & Cathy Q. Ning, 2008. "Estimation of the stochastic conditional duration model via alternative methods," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 593-616, November.
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