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On the iterative plug-in algorithm for estimating diurnal patterns of financial trade durations

Yuanhua Feng (), Sarah Forstinger () and Christian Peitz ()
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Sarah Forstinger: University of Paderborn
Christian Peitz: University of Paderborn

No 66, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: This paper discusses the detailed performance of an iterative plug-in (IPI) bandwidth selector for estimating the diurnal duration pattern in a recently proposed semiparametric autoregressive conditional duration (SemiACD) model. For this purpose an alternative formula of the asymptotically optimal bandwidth is proposed. A large simulation study was carried out based on this new formula. The effect of different factors, which affect the selected bandwidth is discussed in detail. It is shown that the proposed IPI algorithm works very well in practice and that the SemiACD model in general, is clearly superior to the parametric ACD model, if there is a deterministic trend in the duration data. It is also shown that the quality of the bandwidth selection, the diurnal pattern estimate and the parametric estimation will all be clearly improved, if the sample size is enlarged. Furthermore, according to the goodness-of-fit of the estimated diurnal pattern, a best combination of the above mentioned factors is found.

Keywords: Autoregressive conditional duration; diurnal duration patterns; local linear estimator; iterative plug-in; simulation (search for similar items in EconPapers)
JEL-codes: C14 C41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-08
New Economics Papers: this item is included in nep-cmp
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