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Modeling non-stationarities in high-frequency financial time series

Linda Ponta, Mailan Trinh, Marco Raberto (), Enrico Scalas and Silvano Cincotti

Physica A: Statistical Mechanics and its Applications, 2019, vol. 521, issue C, 173-196

Abstract: We study tick-by-tick financial returns for the FTSE MIB index of the Italian Stock Exchange (Borsa Italiana). We confirm previously detected non-stationarities. Scaling properties reported before for other high-frequency financial data are only approximately valid. As a consequence of our empirical analyses, we propose a simple model for non-stationary returns, based on a non-homogeneous normal compound Poisson process. It turns out that our model can approximately reproduce several stylized facts of high-frequency financial time series. Moreover, using Monte Carlo simulations, we analyze order selection for this class of models using three information criteria: Akaike’s information criterion (AIC), the Bayesian information criterion (BIC) and the Hannan–Quinn information criterion (HQ). For comparison, we perform a similar Monte Carlo experiment for the ACD (autoregressive conditional duration) model. Our results show that the information criteria work best for small parameter numbers for the compound Poisson type models, whereas for the ACD model the model selection procedure does not work well in certain cases.

Keywords: Stochastic processes; Information criteria; High-frequency finance (search for similar items in EconPapers)
Date: 2019
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Working Paper: Modeling non-stationarities in high-frequency financial time series (2017) Downloads
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