Ordinal-response models for irregularly spaced transactions: A forecasting exercise

Dimitrakopoulos, Stefanos and Tsionas, Mike G. and Aknouche, Abdelhakim (2020): Ordinal-response models for irregularly spaced transactions: A forecasting exercise.

Abstract

We propose a new model for transaction data that accounts jointly for the time duration between transactions and for the discreteness of the intraday stock price changes. Duration is assumed to follow a stochastic conditional duration model, while price discreteness is captured by an autoregressive moving average ordinal-response model with stochastic volatility and time-varying parameters. The proposed model also allows for endogeneity of the trade durations as well as for leverage and in-mean effects. In a purely Bayesian framework we conduct a forecasting exercise using multiple high-frequency transaction data sets and show that the proposed model produces better point and density forecasts than competing models.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ordinal-response models, irregularly spaced data, stochastic conditional duration, time varying ARMA-SV model, Bayesian MCMC, model confidence set.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C41 - Duration Analysis ; Optimal Timing Strategies; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics

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