Order Arrival, Quote Behavior, and the Return-Generating Process

Joel Hasbrouck and Thomas S Y Ho

Journal of Finance, 1987, vol. 42, issue 4, 1035-48

Abstract: This paper establishes three empirical results. The authors find positive autocorrelation in actual intraday stock returns, in intraday returns computed from quot e-midpoints, and in the arrival of buy and sell orders. They present a model of return generation which incorporates these features via la gged adjustment of the limit-order price and positive dependence in b id and ask transactions. The return model is observationally equivale nt to an ARMA process which is consistent with the observed return be havior. Copyright 1987 by American Finance Association.

Date: 1987
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