Birnbaum–Saunders autoregressive conditional duration models applied to high-frequency financial data

Helton Saulo, Jeremias Leão (), Víctor Leiva () and Robert G. Aykroyd ()
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Jeremias Leão: Universidade Federal do Amazonas
Víctor Leiva: Pontificia Universidad Católica de Valparaíso
Robert G. Aykroyd: University of Leeds

Statistical Papers, 2019, vol. 60, issue 5, No 9, 1605-1629

Abstract: Abstract Modern financial markets now record the precise time of each stock trade, along with price and volume, with the aim of analysing the structure of the times between trading events—leading to a big data problem. In this paper, we propose and compare two Birnbaum–Saunders autoregressive conditional duration models specified in terms of time-varying conditional median and mean durations. These models provide a novel alternative to the existing autoregressive conditional duration models due to their flexibility and ease of estimation. Diagnostic tools are developed to allow goodness-of-fit assessment and to detect departures from assumptions, including the presence of outliers and influential cases. These diagnostic tools are based on the parameter estimates using residual analysis and the Cook distance for global influence, and different perturbation schemes for local influence. A thorough Monte Carlo study is presented to evaluate the performance of the maximum likelihood estimators, and the forecasting ability of the models is assessed using the traditional and density forecast evaluation techniques. The Monte Carlo study suggests that the parameter estimators are asymptotically unbiased, consistent and normally distributed. Finally, a full analysis of a real-world financial transaction data set, from the German DAX in 2016, is presented to illustrate the proposed approach and to compare the fitting and forecasting performances with existing models in the literature. One case related to the duration time is identified as potentially influential, but its removal does not change resulting inferences demonstrating the robustness of the proposed approach. Fitting and forecasting performances favor the proposed models and, in particular, the median-based approach gives additional protection against outliers, as expected.

Keywords: Big data; Birnbaum–Saunders distribution; Forecasting ability; Influence diagnostics; Likelihood-based methods; Monte Carlo simulation; R software (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s00362-017-0888-6

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