A semi-Markov model for price returns

D’Amico, Guglielmo and Filippo Petroni ()

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 20, 4867-4876

Abstract: We study the high frequency price dynamics of traded stocks by a model of returns using a semi-Markov approach. More precisely we assume that the intraday returns are described by a discrete time homogeneous semi-Markov process and the overnight returns are modeled by a Markov chain. Based on this assumptions we derived the equations for the first passage time distribution and the volatility autocorrelation function. Theoretical results have been compared with empirical findings from real data. In particular we analyzed high frequency data from the Italian stock market from 1 January 2007 until the end of December 2010. The semi-Markov hypothesis is also tested through a nonparametric test of hypothesis.

Keywords: Semi-Markov; High frequency finance; First passage time (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (15)

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Working Paper: A semi-Markov model for price returns (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:20:p:4867-4876

DOI: 10.1016/j.physa.2012.05.040

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