Time-Varying Autoregressive Conditional Duration Model

Adriana Bruscato Bortoluzzo, Pedro A. Morettin and Clelia M. C. Toloi

No 59, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: The main goal of this work is to generalize the autoregressive conditional duration (ACD) model applied to times between trades to the case of time-varying parameters. The use of wavelets allows that parameters vary through time and makes possible the modeling of non-stationary processes without preliminary data transformations. The time-varying ACD model estimation was done by maximum likelihood with standard exponential distributed errors. The properties of the estimators were assessed via bootstrap. We present a simulation exercise for a non-stationary process and an empirical application to a real series, namely the TELEMAR stock. Diagnostic and goodness of fit analysis suggest that time-varying ACD model simultaneously modelled the dependence between durations, intra-day seasonality and volatility.

Pages: 22 pages
Date: 2009
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