recent developments in high frequency financial ... - Index of

Roman Liesenfeld . Ingmar Nolte . Winfried Pohlmeier
Modelling financial transaction price
movements: a dynamic integer count
data model
Abstract In this paper we develop a dynamic model for integer counts to capture
fundamental properties of financial prices at the transaction level. Our model relies
on an autoregressive multinomial component for the direction of the price change
and a dynamic count data component for the size of the price changes. Since the
model is capable of capturing a wide range of discrete price movements it is
particularly suited for financial markets where the trading intensity is moderate or
low. We present the model at work by applying it to transaction data of two shares
traded at the NYSE traded over a period of one trading month. We show that the
model is well suited to test some theoretical implications of the market microstructure
theory on the relationship between price movements and other marks of
the trading process. Based on density forecast methods modified for the case of
discrete random variables we show that our model is capable to explain large parts
of the observed distribution of price changes at the transaction level.
An earlier version of this paper has been presented at seminars in Helsinki, Munich, Louvain and
the ESEM 2003 in Stockholm.
R. Liesenfeld
Christian-Albrechts-Universität, Kiel, Germany
I. Nolte
University of Konstanz, CoFE, Konstanz, Germany
W. Pohlmeier
University of Konstanz, CoFE, ZEW, Konstanz, Germany
W. Pohlmeier (*)
Department of Economics, University of Konstanz,
Box D124, 78457 Konstanz, Germany
E-mail: winfried.pohlmeier@uni-konstanz.de