Stochastic Conditional Duration Model with a Mixture-of-Normal Error Distribution: Theoretical Properties and Monte-Carlo Results
Posted: 2 Apr 2013
Date Written: April 1, 2013
This paper provides theoretical properties and Monte-Carlo studies of a stochastic conditional duration model with mixture-of-normal error distributions an effcient estimation approach via a continuous empirical characteristic function. The empirical version of this paper is studied in Xu, Knight, and Wirjanto (2011). The proposed model is shown to be capable of capturing various density shapes of the expected duration of financial trades as well as accommodating various types of dependence structure between the error processes. Detailed Monte-Carlo results are provided to assess the performance of the proposed model and estimation approach.
Keywords: Stochastic Conditional Duration Model, Autoregressive Conditional Duration Model, Leverage Effect, Discrete Mixtures of Normal, Empirical Characteristic Function
JEL Classification: C22, C53, G19
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