Autoregressive conditional duration

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Autoregressive conditional duration

In financial econometrics, an autoregressive conditional duration (ACD, Engle and Russell (1998)) model considers irregularly spaced and autocorrelated intertrade durations. ACD is analogous to GARCH. Indeed, in a continuous double auction (a common trading mechanism in many financial markets) waiting times between two consecutive trades vary at random.

Definition

Specifically, let $~ au_t~$ denote the duration (the waiting time between consecutive trades) andassume that $~ au_t= heta_t z_t ~$, where$z_t sim iid~$, positive and with $operatorname\left\{E\right\}\left(z_t\right) = 1$ and wherethe series $~ heta_t~$ is given by

and where $~alpha_0>0~$, $alpha_ige 0$,, $~i>0$.

References

* Robert F. Engle and J.R. Russell. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data", "Econometrica", 66:1127-1162, 1998.

* N. Hautsch. "Modelling Irregularly Spaced Financial Data", Springer, 2004.

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