Modeling the interdependence of volatility and inter-transaction duration processes

Joachim Grammig and Marc Wellner

No 1999,21, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: In this paper we motivate, specify and estimate a model in which the intra-day volatilty process affects the inter-transaction duration process and vice versa. In order to solve the estimation problems implied by this interdependent formulation, we first propose a GMM estimation procedure for the Autoregressive Conditional Duration model. The method is then extended to the simultaneous estimation of the interdependent duration-volatility model. In an empirical application we utilize the model for an indirect test of the hypothesis that volatility is caused by private information that affects prices when informed investors trade. The result that volatility shocks significantly increase expected inter-transaction durations supports this hypothesis.

Keywords: Inter-transaction duration and volatility; financial market microstructure; ultrahigh frequency data; autoregressive conditional duration (search for similar items in EconPapers)
JEL-codes: C32 C41 C51 G14 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:199921

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