High Frequency Financial Econometrics

1. Front Matter

   Pages i-vi

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2. Editor's introduction: recent developments in high frequency financial econometrics

   • Luc Bauwens, Winfried Pohlmeier, David Veredas

   Pages 1-5

3. Exchange rate volatility and the mixture of distribution hypothesis

   • Luc Bauwens, Dagfinn Rime, Genaro Sucarrat

   Pages 7-29

4. A multivariate integer count hurdle model: theory and application to exchange rate dynamics

   • Katarzyna Bien, Ingmar Nolte, Winfried Pohlmeier

   Pages 31-48

5. Asymmetries in bid and ask responses to innovations in the trading process

   • Alvaro Escribano, Roberto Pascual

   Pages 49-82

6. Liquidity supply and adverse selection in a pure limit order book market

   • Stefan Frey, Joachim Grammig

   Pages 83-109

7. How large is liquidity risk in an automated auction market?

   • Pierre Giot, Joachim Grammig

   Pages 111-131

8. Order aggressiveness and order book dynamics

   • Anthony D. Hall, Nikolaus Hautsch

   Pages 133-165

9. Modelling financial transaction price movements: a dynamic integer count data model

   • Roman Liesenfeld, Ingmar Nolte, Winfried Pohlmeier

   Pages 167-197

10. The performance analysis of chart patterns: Monte Carlo simulation and evidence from the euro/dollar foreign exchange market

    • Walid Ben Omrane, Hervé Van Oppens

    Pages 199-223

11. Semiparametric estimation for financial durations

    • Juan M. Rodríguez-Poo, David Veredas, Antoni Espasa

    Pages 225-251

12. Intraday stock prices, volume, and duration: a nonparametric conditional density analysis

    • Anthony S. Tay, Christopher Ting

    Pages 253-268

13. Macroeconomic surprises and short-term behaviour in bond futures

    • David Veredas

    Pages 269-292

14. Dynamic modelling of large-dimensional covariance matrices

    • Valeri Voev

    Pages 293-312

In this paper, we propose a new econometric approach to jointly model the time series dynamics of the trading process and the revisions of ask and bid prices. We use this model to test the validity of certain symmetry assumptions very common among microstructure models. Namely, we test whether ask and bid quotes respond symmetrically to trade-related shocks, and whether buyer-initiated trades and seller-initiated trades are equally informative. In essence, the procedure we propose generalizes Hasbrouck’s (1991) vector autoregressive model for signed trades and changes in the quote midpoint by relaxing the implicit symmetry assumptions in his model. The properties of the empirical model are derived from a structural dynamic model for ask and bid prices. In this model, ask and bid prices share a common lung-run component, the efficient price. The long-term value of the stock varies due to buyer-initiated shocks, seller-initiated shocks, and trade-unrelated shocks. The transitory components of ask and bid prices are characterized by two correlated and trade-dependent stochastic processes, whose dynamics are allowed to differ. The trading process is endogenous. Buyer and seller-initiated trades are generated by two idiosyncratic but mutually dependent stochastic processes. The generating processes of quotes and trades both depend on several exogenous variables that feature the trades and the market conditions.

• Finance
• High Frequency Finance
• Market Microstructure
• Monte Carlo Simulation
• Simulation
• count data
• dynamics
• econometrics
• futures
• liquidity
• modeling
• trading
• volatility
• quantitative finance

• CORE, Voie du Roman Pays, Louvain-la-Neuve, Belgium

  Luc Bauwens

• Department of Economics, University of Konstanz, Konstanz, Germany

  Winfried Pohlmeier

• ECARES, Université Libre des Bruxelles, Brussels, Belgium

  David Veredas

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