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

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Fig. 12 QQ-Plot against std. normal quantiles of the density forecast variable ui* for Jack in the
Box Inc. (JBX) and Halliburton Company (HAL)
5 Conclusions
JBX HAL
R. Liesenfeld et al.
In this paper, we introduce a new approach to analyze transaction price movements
in financial markets. It relies on a hurdle count data approach that has been
extended to include negative counts. The parsimonious form of our model consists
of two processes: a process for the price direction, and one for the size of the price
movement. Our approach is particularly suited for financial markets where the
outcome space of the transaction returns is countable. Since the decimalization at
many stock exchanges, the model is applicable for a wide range of stocks.
We show the approach at work by analyzing the transaction price dynamics
of the frequently traded stocks of Jack in the Box Inc. and the stocks of the
Halliburton Company with considerably higher market capitalization and trade
intensity. The pure time series approach can easily be extended to test various
implications of market microstructure theory. We show that our approach does
fairly well in modelling the overall observed distribution of the transaction price
changes. Using a density forecast test designed for discrete distributions, we show
that for our two samples the vast majority of small and moderate price changes
can be well-explained while there is evidence for some misspecification with respect
to the tail behavior.
In order to assess the potential of our approach, the model has to be subjected to
intensive checks of its forecasting properties. Comparative studies with respect to
such properties of various approaches and applications to other financial assets and
to exchanges with different trading platforms should provide more insights into
the potential applicability of our approach. Alternatively, the quality of the model
could be assessed by using it as the basis for a trading strategy. Finally, the ICH
model should be embedded into a joint model of the transaction price movements
and trading times.