A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities

Chen, Fei; Diebold, Francis X.; Schorfheide, Frank

doi:10.2139/ssrn.2055210

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A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities

PIER Working Paper No. 12-020

62 Pages Posted: 10 May 2012

See all articles by Fei Chen

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); University of Pennsylvania - The Penn Institute for Economic Research (PIER)

There are 2 versions of this paper

Date Written: May 7, 2012

Abstract

We propose and illustrate a Markov-switching multi-fractal duration (MSMD) model for analysis of inter-trade durations in financial markets. We establish several of its key properties with emphasis on high persistence (indeed long memory). Empirical exploration suggests MSMD's superiority relative to leading competitors.

Keywords: High-frequency trading data, point process, long memory, time deformation, scaling law, self-similarity, regime-switching model, market microstructure, liquidity

JEL Classification: C41, C22, G1

Suggested Citation: Suggested Citation

Chen, Fei and Diebold, Francis X. and Schorfheide, Frank, A Markov-Switching Multi-Fractal Inter-Trade Duration Model, with Application to U.S. Equities (May 7, 2012). PIER Working Paper No. 12-020, Available at SSRN: https://ssrn.com/abstract=2055210 or http://dx.doi.org/10.2139/ssrn.2055210

Fei Chen

HUST ( email )

1037 Luoyu Road
Wuhan, Hubei 430074
China

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/