Modeling and forecasting persistent financial durations

Filip Zikes, Jozef Baruník and Nikhil Shenai

No 36, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: This paper introduces the Markov-Switching Multifractal Duration (MSMD) model by adapting the MSM stochastic volatility model of Calvet and Fisher (2004) to the duration setting. Although the MSMD process is exponential ß-mixing as we show in the paper, it is capable of generating highly persistent autocorrelation. We study analytically and by simulation how this feature of durations generated by the MSMD process propagates to counts and realized volatility. We employ a quasi-maximum likelihood estimator of the MSMD parameters based on the Whittle approximation and establish its strong consistency and asymptotic normality for general MSMD specifications. We show that the Whittle estimation is a computationally simple and fast alternative to maximum likelihood. Finally, we compare the performance of the MSMD model with competing short- and long-memory duration models in an out-of-sample forecasting exercise based on price durations of three major foreign exchange futures contracts. The results of the comparison show that the MSMD and the Long Memory Stochastic Duration model perform similarly and are superior to the short-memory Autoregressive Conditional Duration models.

Keywords: price durations; long memory; multifractal models; realized volatility; Whittle estimation (search for similar items in EconPapers)
JEL-codes: C13 C58 G17 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ets, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Modeling and forecasting persistent financial durations (2017)
Working Paper: Modeling and Forecasting Persistent Financial Durations (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:36

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