The UHF-GARCH-Type Model in the Analysis of Intraday Volatility and Price Durations – the Bayesian Approach

Roman Huptas ()
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Roman Huptas: Cracow University of Economics

Central European Journal of Economic Modelling and Econometrics, 2016, vol. 8, issue 1, 1-20

Abstract: In empirical research on financial market microstructure and in testing some predictions from the market microstructure literature, the behavior of some characteristics of trading process can be very important and useful. Among all characteristics associated with tick-by-tick data, the trading time and the price seem the most important. The very first joint model for prices and durations, the so-called UHF-GARCH, has been introduced by Engle (2000). The main aim of this paper is to propose a simple, novel extension of Engle’s specification based on trade-to-trade data and to develop and apply the Bayesian approach to estimation of this model. The intraday dynamics of the return volatility is modelled by an EGARCH-type specification adapted to irregularly time-spaced data. In the analysis of price durations, the Box-Cox ACD model with the generalized gamma distribution for the error term is considered. To the best of our knowledge, the UHF-GARCH model with such a combination of the EGARCH and the Box-Cox ACD structures has not been studied in the literature so far. To estimate the model, the Bayesian approach is adopted. Finally, the methodology developed in the paper is employed to analyze transaction data from the Polish Stock Market.

Keywords: intraday volatility; UHF-GARCH-type model; ACD model; transaction data; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 C22 C55 C58 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:8:y:2016:i:1:p:1-20

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