Modeling Intraday Stochastic Volatility and Conditional Duration Contemporaneously with Regime Shifts

Sebastian Trojan ()

No 1425, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: A high frequency stochastic volatility (SV) model is proposed. Price duration and associated absolute price change in event time are modeled contemporaneously to fully capture volatility on the tick level, combining the SV and stochastic conditional duration (SCD) model. Estimation is with IBM stock intraday data 2001/10 (decimalization completed), taking a minimum midprice threshold of a half tick. Persistent information flow is extracted, featuring a positively correlated innovation term and negative cross effects in the AR(1) persistence matrix. Additionally, regime switching in both duration and absolute price change is introduced to increase nonlinear capabilities of the model. Thereby, a separate price jump state is identified. Model selection and predictive tests show superiority of the regime switching extension in- and out-of-sample.

Keywords: Stochastic volatility; stochastic conditional duration; non-Gaussian and nonlinear state space model; tick data; event time; generalized gamma distribution; negative binomial distribution; regime switching; Markov chain Monte Carlo; block sampler; particle filter; adaptive Metropolis (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 C58 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014-08
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mst and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1425.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2014:25

Access Statistics for this paper

More papers in Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by ().