Capturing the zero: a new class of zero-augmented distributions and multiplicative error processes

We propose a novel approach to model serially dependent positive-valued variables which realize a non-trivial proportion of zero outcomes. This is a typical phenomenon in financial time series observed on high frequencie
We propose a novel approach to model serially dependent positive-valued variables which realize a non-trivial proportion of zero outcomes. This is a typical phenomenon in financial time series observed on high frequencies, such as cumulated trading volumes or the time between potentially simultaneously occurring market events. We introduce a flexible pointmass mixture distribution and develop a semiparametric specification test explicitly tailored for such distributions. Moreover, we propose a new type of multiplicative error model (MEM) based on a zero-augmented distribution, which incorporates an autoregressive binary choice component and thus captures the (potentially different) dynamics of both zero occurrences and of strictly positive realizations. Applying the proposed model to high-frequency cumulated trading volumes of liquid NYSE stocks, we show that the model captures both the dynamic and distribution properties of the data very well and is able to correctly predict future distributions. Keywords: High-frequency Data , Point-mass Mixture , Multiplicative Error Model , Excess Zeros , Semiparametric Specification Test , Market Microstructure JEL Classification: C22, C25, C14, C16, C51
show moreshow less

Download full text files

Export metadata

  • Export Bibtex
  • Export RIS

Additional Services

    Share in Twitter Search Google Scholar
Metadaten
Author:Nikolaus Hautsch, Peter Malec, Melanie Schienle
URN:urn:nbn:de:hebis:30-87070
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2010,19
Series (Serial Number):CFS working paper series (2010, 19)
Document Type:Working Paper
Language:English
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2010/12/14
Tag:Excess Zeros; High-frequency Data; Market Microstructure; Multiplicative Error Model; Point-mass Mixture; Semiparametric Specification Test
SWD-Keyword:Finanzwirtschaft; Zeitreihenanalyse
Issue:November 2010
Pagenumber:32
HeBIS PPN:230599133
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

$Rev: 11761 $