A STATISTICAL MODEL OF CHANGES IN ASSET PRICES EMPLOYING INTRADAY DATA: A RECURSIVE APPROACH

Roy A. Fletcher

Review of Financial Economics, 1993, vol. 2, issue 2, 43-58

Abstract: This paper develops a statistical model of changes in asset prices employing intraday data. The procedure proposed in this paper is an alternative to the Hausman, Lo, and MacKinlay (1992) ordered probit model. Similar to the ordered probit model, our model also contains the linear regression model as a special case. However, compared to the ordered probit model, our specification is parsimonious. Parsimony does come at a cost, but for certain applications where, for example, a benchmark return is needed in intraday studies, there is value in terms of the computational effort required and the method's robustness to various empirical microstructure phenomena. The parsimony is achieved when statistical implications arising from intraday structural changes, which may due to such factors as concentrated trading patterns, are incorporated into a statistical model.

Date: 1993
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https://doi.org/10.1002/j.1873-5924.1993.tb00564.x

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