Bayesian Dynamic Modeling of High-Frequency Integer Price Changes

Istvan Barra, Siem Jan Koopman and Agnieszka Borowska
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Istvan Barra: Vrije Universiteit Amsterdam
Agnieszka Borowska: Vrije Universiteit, the Netherlands

No 16-028/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We investigate high-frequency volatility models for analyzing intra-day tick by tick stock price changes using Bayesian estimation procedures. Our key interest is the extraction of intra-day volatility patterns from high-frequency integer price changes. We account for the discrete nature of the data via two different approaches: ordered probit models and discrete distributions. We allow for stochastic volatility by modeling the variance as a stochastic function of time, with intra-day periodic patterns. We consider distributions with heavy tails to address occurrences of jumps in tick by tick discrete prices changes. In particular, we introduce a dynamic version of the negative binomial difference model with stochastic volatility. For each model we develop a Markov chain Monte Carlo estimation method that takes advantage of auxiliary mixture representations to facilitate the numerical implementation. This new modeling framework is illustrated by means of tick by tick data for several stocks from the NYSE and for different periods. Different models are compared with each other based on predictive likelihoods. We find evidence in favor of our preferred dynamic negative binomial difference model.

Keywords: Bayesian inference; discrete distributions; high-frequency dynamics; Markov chain Monte Carlo; stochastic volatility (search for similar items in EconPapers)
JEL-codes: C22 C58 (search for similar items in EconPapers)
Date: 2016-04-22, Revised 2018-02-16
New Economics Papers: this item is included in nep-ecm, nep-pr~, nep-mst and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Bayesian Dynamic Modeling of High-Frequency Integer Price Changes (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20160028

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