Modelling financial transaction price movements : a dynamic integer count data model

Liesenfeld, Roman and Nolte, Ingmar and Pohlmeier, Winfried (2006) Modelling financial transaction price movements : a dynamic integer count data model. Empirical Economics, 30 (4). pp. 795-825. ISSN 0377-7332

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In this paper we develop a dynamic model for integer counts to capture fundamental properties of financial prices at the transaction level. Our model relies on an autoregressive multinomial component for the direction of the price change and a dynamic count data component for the size of the price changes. Since the model is capable of capturing a wide range of discrete price movements it is particularly suited for financial markets where the trading intensity is moderate or low. We present the model at work by applying it to transaction data of two shares traded at the NYSE traded over a period of one trading month. We show that the model is well suited to test some theoretical implications of the market microstructure theory on the relationship between price movements and other marks of the trading process. Based on density forecast methods modified for the case of discrete random variables we show that our model is capable to explain large parts of the observed distribution of price changes at the transaction level.

Item Type:
Journal Article
Journal or Publication Title:
Empirical Economics
Uncontrolled Keywords:
?? financial transaction pricesautoregressive conditional multinomial modelglarmacount datamarket microstructure effectstrading volumestock-pricesvolatilityinformationconstraintsadjustmentmarketstimeeconomics and econometricssocial sciences (miscellaneous)ma ??
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Deposited On:
05 Aug 2013 13:53
Last Modified:
15 Jul 2024 14:07