We propose a fully nonparametric approach to the analysis of the Autocorrelated Conditional Duration (ACD) process applied to durations between financial events. We use a recursive algorithm to estimate the nonparametric specification. In a Monte Carlo experiment, we analyse its forecasting performance and compare it with a correctly and a mis-specified parametric estimator. On a real dataset, the nonparametric estimator seems to mildly overperform in terms of predictive power. The nonparametric analysis can also provide guidance on the choice between alternative parametric specifications. In particular, once intraday seasonality is directly modelled in the conditional duration function, the nonparametric approach provides insights into the time-varying nature of the dynamics in the model that the standard procedures of deseasonalization may lead one to overlook.

(2019). A nonparametric ACD model . Retrieved from https://hdl.handle.net/10446/239352

A nonparametric ACD model

Cosma, Antonio;
2019-01-01

Abstract

We propose a fully nonparametric approach to the analysis of the Autocorrelated Conditional Duration (ACD) process applied to durations between financial events. We use a recursive algorithm to estimate the nonparametric specification. In a Monte Carlo experiment, we analyse its forecasting performance and compare it with a correctly and a mis-specified parametric estimator. On a real dataset, the nonparametric estimator seems to mildly overperform in terms of predictive power. The nonparametric analysis can also provide guidance on the choice between alternative parametric specifications. In particular, once intraday seasonality is directly modelled in the conditional duration function, the nonparametric approach provides insights into the time-varying nature of the dynamics in the model that the standard procedures of deseasonalization may lead one to overlook.
2019
Cosma, Antonio; Galli, Fausto
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Descrizione: This is an Accepted Manuscript of an article published by Taylor & Francis in Financial Mathematics, Volatility and Covariance Modelling. Volume 2 on 18 July 2019, available online: https://doi.org/10.4324/9781315162737
Versione: postprint - versione referata/accettata senza referaggio
Licenza: Creative commons
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/239352
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